30-Year-Old Inherited Tax Debate... Looking Back at the Past Record of 'Top Tax Rate 90%' [News Explanation]

Top Inheritance Tax Rate Was 90% Under Rhee Syngman Administration
Aimed at Increasing Revenue and Punishing Accumulated Assets
Maintained in the 70% Range During Park Chung-hee Era
Direct Comparison with Current System Difficult Due to Currency and Political Differences

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"During the Rhee Syngman government, the inheritance tax rate was 90%, and during the Park Chung-hee government, it was 70%." Former Democratic Party lawmaker Park Yong-jin made this claim regarding the political debate over inheritance tax reductions (on SBS Radio on the 4th). In response to the ruling party's argument that the highest inheritance tax rate is high and 'punitive,' he countered by pointing out that the respected conservative governments of Rhee Syngman and Park Chung-hee applied even higher top rates.

Based on the highest inheritance tax rate, Park's statement is true. The current inheritance tax applies a top rate of 50%, but when the inheritance tax law was first enacted in 1950 under the Rhee Syngman government (term 1948?1960), the highest rate reached 90%. It was designed to apply a progressive tax rate in 15 steps ranging from a minimum of 20% to a maximum of 90% on inherited assets exceeding 50 million won. The tax amount was determined by multiplying the progressive rate by the amount exceeding each tax base.

The reason the highest inheritance tax rate was at a 'bombshell' level at that time included ▲ the need to increase national revenue ▲ punitive taxation on assets accumulated during the Japanese occupation. In 1950, just five years after liberation, South Korea was one of the poorest countries in the world, with a gross national income (GNI) per capita of only $76 (compared to $36,624 in 2024). Due to the depletion of the national treasury from Japanese exploitation, the government needed to increase tax revenue.

Also, among those subject to inheritance tax at the time were families who had accumulated wealth during the Japanese colonial period. Furthermore, due to limited administrative capacity to collect income tax and others, the government aimed to effectively collect taxes all at once at the point of inheritance, where the tax base was exposed.

Subsequently, inheritance tax rates gradually decreased, applying a top rate of 55% in 1956 and 30% in 1961 on inherited assets exceeding 100 million hwan (hwan was the currency unit used before the 1962 currency reform). However, although 1 hwan was equivalent to 100 won, the currency value was different before the currency reform, making simple comparisons of tax base amounts difficult. The 1962 currency reform changed 10 hwan to 1 won.

During the Park Chung-hee government (term 1963?1979), the highest inheritance tax rate was in the 70% range. For inherited assets exceeding 500 million won, the top rate was 70% in 1968 and 75% in 1975. In the final year of his term, 1979, the top rate slightly decreased to 67%.

The highest inheritance tax rate entered the 50% range, similar to the current rate, in 1988 (55%). With the implementation of the real-name financial and real estate system, tax base detection became easier, and the top rate was further reduced to 45% in 1997 but raised back to 50% three years later in 2000. At that time, the top tax bracket was adjusted from 'over 5 billion won' to 'over 3 billion won,' and the top rate and tax bracket set then have been maintained to this day.

The current inheritance tax applies rates by bracket. Depending on the size of the inherited assets, the rates are ▲ 10% for up to 100 million won ▲ 20% for over 100 million won up to 500 million won ▲ 30% for over 500 million won up to 1 billion won ▲ 40% for over 1 billion won up to 3 billion won ▲ 50% for over 3 billion won. However, inheritance tax is exempted up to 1 billion won (a combined deduction of 500 million won plus a spouse deduction of 500 million won).

The political debate over inheritance tax started from a consensus that the tax framework created in the 1990s has been maintained for 30 years and is now significantly out of sync with the current economic situation. As real estate prices in the metropolitan area rise, there are concerns that even a single apartment can become subject to inheritance tax.

Currently, the Democratic Party has set as its party stance to maintain the highest inheritance tax rate but increase the basic and spouse deduction amounts to 800 million won and 1 billion won respectively, exempting up to 1.8 billion won from inheritance tax. In contrast, the People Power Party argues for lowering the highest inheritance tax rate to 40% and abolishing the major shareholder surcharge. They claim that applying the major shareholder surcharge, which taxes an additional 20% on major shareholders, raises South Korea's highest inheritance tax rate to 60%.

Another issue is the reform from inheritance tax to estate acquisition tax. The current inheritance tax is an estate tax method that taxes the total assets of the deceased, but there is a proposal to switch to an estate acquisition tax method that taxes based on the size of assets inherited by each heir. If changed to the estate acquisition tax method, the taxable assets would decrease, likely reducing the tax burden. The Ministry of Economy and Finance has announced plans to release a legislative amendment proposal to change the inheritance tax system to estate acquisition tax within this month and to conduct a public discussion process for the law revision.