SEOUL (Reuters) - South Korea plans to overhaul inheritance tax codes to make them more equitable and encourage wealth transfer to younger generations, the finance ministry said on Wednesday, in its first step towards addressing a tax burden that has faced criticism.
Although the proposed tax revision does not seek to lower inheritance tax rates, among the world’s highest, it aims to shift to a recipient-based inheritance tax system to make the process more equitable, from the current estate tax system.
Under the new codes, taxes will be imposed on the amount of inheritance received by each recipient, rather than the total wealth of the donor, splitting liabilities among beneficiaries with separate tax deductions applicable for each.
South Korea is one of four member countries of the Organisation for Economic Co-operation and Development (OECD) currently imposing estate tax, while most others levy inheritance tax. The other three are the United States, Britain and Denmark.
OECD recommended in a 2021 report that "a recipient-based inheritance tax may be more equitable than an estate tax", as it encourages the division of estates and reduces concentrations.
Last year, the administration of now-impeached President Yoon Suk Yeol proposed removing the highest tax rate of 50%, as high inheritance taxes have often been cited as a factor behind the "Korea discount" in the domestic stock market, which refers to South Korean firms’ comparatively lower valuations.
At the time, the move was met by criticism from the left-leaning opposition Democratic Party that has a majority in parliament, although its leader Lee Jae-myung recently agreed that some codes needed to be revised in a more rational way.
"Today’s announcement only includes what is absolutely necessary," a finance ministry official told a briefing, adding that other revisions proposed last year would continue to be pursued.
The government plans to implement the changes announced on Wednesday from 2028. They still require approval from parliament.
($1 = 1,454.7500 won)