"To Overcome Economic Crisis, Inheritance Tax Abolition and Corporate Tax Reduction Must Be Implemented"

KEF Holds Tax Reform Forum to Overcome COVID-19 and Revitalize the Economy

[Asia Economy Reporter Kiho Sung] There has been a call to lower inheritance tax rates in the short term and abolish inheritance tax in the long term to overcome the novel coronavirus disease (COVID-19), maintain the continuity of corporate management, and strengthen international competitiveness. Additionally, it was suggested that it is urgent to reduce the top corporate tax rate from the current 25% to 22% in preparation for the rapidly changing global value chain.

The Korea Employers Federation (KEF) held a forum on "Tax Reform to Overcome COVID-19 and Revitalize the Economy" on the 15th. The forum was held online without an audience to comply with social distancing measures.

KEF pointed out, "The signs of economic contraction in our country are becoming more apparent this year," and added, "The role of companies is very important for Korea to lead the post-COVID economic era, and the business environment must be improved so that our companies can operate more actively." They also stated, "In particular, the tax environment must be competitively aligned with global standards, and this forum was held with that purpose."

"Lower Inheritance Tax Rates Short-Term, Abolish Long-Term"

On this day, Professor Won Yoon-hee of the University of Seoul emphasized in her presentation titled "Key Issues in Tax Policy in the COVID-19 Era - Focusing on Income Tax and Inheritance Tax" that "to maintain the continuity of corporate management and strengthen international competitiveness, inheritance tax rates should be lowered in the short term and abolished in the long term in line with global standards." Regarding income tax, she pointed out, "Income tax rates should be restructured so that many people bear a slightly higher burden rather than raising the top rates for a few high-income earners."

Professor Won stated, "The easing of inheritance tax burdens is an international trend," and emphasized, "In the short term, inheritance tax burdens should be alleviated by lowering rates and expanding special provisions for business succession, making it easier to inherit family businesses. In the long term, abolishing inheritance tax and strengthening income tax is the desirable direction."

Regarding income tax, she added, "There is growing controversy over the validity of tax policies that significantly increase taxation on certain taxpayers," and pointed out, "When tax revenue expansion is necessary to restore fiscal soundness, the burden should not be concentrated on specific groups but fairly distributed according to the ability of all taxpayers, which is true solidarity." She emphasized again, "It is better to restructure so that many people bear a slightly higher burden rather than raising the top rates for some high-income groups."

"Need to Lower Corporate Tax Rate and Reform Tax System to Promote R&D Activities"

Professor Lee Sung-bong of Seoul Women's University stressed in his presentation titled "Post-COVID-19 Global Value Chain Changes and Corporate Tax Law and Tax Incentives Reform Measures" that "to overcome COVID-19, it is most urgent to lower the corporate tax rate and reform the tax system to promote R&D activities."

He said, "The 2020 tax reform plan related to corporate tax is unlikely to contribute to revitalizing the economy amid the rapidly changing global value chain (GVC) turmoil," and stated, "To overcome the COVID-19 economic crisis, it is urgent to fundamentally lower the top corporate tax rate from the current 25% to 22%."

"Lead the Post-COVID Era with R&D Tax Reform"

Regarding R&D tax, he said, "To lead the post-COVID era, R&D activities must be promoted," and pointed out, "To this end, the tax system should be reformed to enhance the global competitiveness of our industry by introducing a 'patent box system' that reduces corporate tax on income generated from commercializing intellectual property including patents, raising the R&D tax credit rate for large corporations, and reintroducing the research and manpower development reserve."

The discussion, chaired by Professor Hong Ki-yong of Incheon National University, included participants such as Professor Kim Sang-gyeom of Dankook University, Professor Kim Seong-hyun of Sungkyunkwan University, and Partner Kim Cheol of EY Han Young Accounting Corporation, who presented various opinions on tax reform to revitalize the economy.

Regarding corporate tax, Professor Kim Sang-gyeom of Dankook University said, "Corporate tax reform is the most painful mistake among recent tax reforms in Korea," and pointed out, "Bold policy shifts such as lowering corporate tax rates and integrating tax brackets should precede."

Professor Kim Seong-hyun of Sungkyunkwan University emphasized, "If a 2 percentage point corporate tax rate cut is applied to all companies, total investment is expected to increase by 2% in the short term and 3.5% in the long term."

Partner Kim Cheol of EY Han Young Accounting Corporation pointed out, "The carryforward loss system and integrated investment tax credit system should be adjusted so that companies struggling due to COVID-19 can receive practical support."

"Consider Tax Cuts Rather Than Fiscal Spending"

Regarding income and inheritance taxes, Professor Kim Seong-hyun of Sungkyunkwan University emphasized, "In Korea, a small open economy, government spending increases only affect short-term consumption, and the fiscal multiplier effect on GDP or investment is minimal," adding, "It is necessary to consider tax cut policies instead of increasing fiscal spending."

Partner Kim Cheol of EY Han Young Accounting Corporation said, "In consultations, companies often express difficulties related to inheritance tax," and pointed out, "The inheritance tax system should be more flexibly reformed so that the next generation of business owners can grow their companies domestically after inheritance."

Ha Sang-woo, Head of the Economic Research Department at KEF, said, "Empirical analysis shows that high inheritance tax negatively affects economic growth and investment," and pointed out, "Inheritance issues in companies should be viewed not simply as 'wealth succession' but from the perspective of business continuity." He added, "Our inheritance tax rates should be lowered to align with global standards." He also emphasized, "Since our economy is trapped in a dark tunnel due to COVID-19, it is necessary to lower corporate tax rates to quickly exit the tunnel through investment activation." Furthermore, he said, "Based on the contents of today's forum, we plan to actively respond to ensure reasonable tax reform during the 2020 tax law amendment discussions in the National Assembly."