Economic Six Groups "Korea's Inheritance and Gift Tax Burden Highest in the World"... Urge Reform

6 Organizations Including Hankyung Association and KCCI
'Inheritance and Gift Tax Reform, the Key to Century-Old Companies' Published
Pointing Out Issues of Uniform and Double Taxation
Proposing Introduction of Capital Gains Tax and Others

Six major economic organizations have claimed that the current tax system, including inheritance and gift taxes, is stifling the business activities of Korean companies and have called for a reform.

The Korea Economic Federation, Korea Chamber of Commerce and Industry, Korea Employers Federation, Korea International Trade Association, Korea Federation of Small and Medium Business, and Korea Federation of Medium-sized Enterprises jointly announced on the 27th that they will publish a booklet titled "Inheritance and Gift Tax Reform, the Key to Growing Century-old Companies" and distribute it to the government, National Assembly, and member companies starting next month.

In the booklet, the organizations emphasized that the domestic burden of inheritance and gift taxes is among the highest in the world. The nominal top rate of inheritance and gift tax is 50%, ranking second among OECD countries after Japan (55%). However, when including the 20% surcharge applied to the largest shareholder in stock inheritance, the effective top rate reaches 60%, making it the highest in the OECD, according to the organizations. Under current laws, the shares of the largest shareholder are considered to have a premium for exercising corporate management rights and are thus valued higher than ordinary shares.

The six economic organizations also stated that the ratio of inheritance and gift tax revenue to Gross Domestic Product (GDP), which reflects the actual tax burden, is 0.68% in Korea, ranking second in the OECD after France (0.7%). The OECD average is 0.15%.

The organizations pointed out that unlike Korea, which uniformly imposes inheritance and gift taxes regardless of the relationship between the heir and the decedent, 15 of the 38 OECD countries, including France and Germany, exempt or apply reduced tax rates on inheritance to direct descendants. Another 15 OECD countries, such as Australia and Canada, have abolished inheritance tax altogether and shifted to capital gains tax, which is levied when inherited stocks are sold and converted into cash. They also argued that the current inheritance and gift tax system constitutes double taxation, as it taxes wealth that has already been subject to income and property taxes during accumulation.

Furthermore, the six economic organizations expressed concern that the heavy inheritance and gift tax burden increases financial uncertainty during business succession, restricting management activities such as investment and employment. It also creates situations where companies must sell shares to raise tax funds, increasing the risk of damaging corporate value.

They proposed lowering inheritance and gift tax rates and suggested capital gains tax as a long-term solution to resolve the issue of double taxation. They also called for abolishing the uniform surcharge valuation rule on the largest shareholder's shares and increasing the utilization of the business succession deduction system to ease tax burdens during corporate succession.