DP leader vows to lessen inheritance tax, refuses to lower tax on business bequests
Rep. Lee Jae-myung, chair of the main opposition Democratic Party of Korea, has vowed to try to lessen the tax burden on those who inherit a house.
Lee said last Saturday that he will seek to ensure that surviving spouses and children can keep living in their homes and not have to sell them to pay inheritance tax.
Current inheritance tax rates range from 10 to 50 percent, with 500 million won ($346,000) deducted twice -- across the board and for the surviving spouse. Effectively, inheritance tax is imposed only on assets exceeding one billion won.
The Democratic Party seeks to revise inheritance tax law to increase the basic and spouse deductions to 800 million and 1 billion won, respectively. If the law is revised as the party wants, there would be no tax on inheritance property worth up to 1.8 billion won.
Lee and his party’s idea is that they are going to resolve a difficult situation facing the middle class, some of whom are forced to dispose of their houses, a major component of their wealth, to pay inheritance tax.
The average price of Seoul apartments already exceeds 1.2 billion won. Inheritance tax is unavoidable for many apartment owners in Seoul and the surrounding area. It can be burdensome to pay tens or hundreds of millions of won in inheritance tax at once.
Reflecting this reality in law is the right thing to do, but Lee's sincerity is in question.
His policies recently zigzagged. He got closer to conservatives to expand his base under the banner of pragmatism, then stepped back due to opposition from his traditional progressive supporters. He said he could abandon his plan to give every Korean 250,000 won from state coffers under the pretext of helping their livelihoods if a supplementary budget were to be drawn up, but his party presented its supplementary budget bill that includes the handout under a different name. He made remarks that appeared to support the exemption of semiconductor R&D workers from the 52-hour workweek limit as businesses have demanded, but soon backtracked amid a backlash from labor groups.
It is questionable whether his vow to increase tax deductions for home inheritance is aimed at winning over the middle class in the event of a presidential election, should the Constitutional Court uphold the impeachment of President Yoon Suk Yeol.
The Democratic Party, which controls the National Assembly as the majority party, is able to pass any bill it wants. If Lee decides to lessen the inheritance tax burden, nothing stands in his way. The problem is Lee's own backpedaling.
He made no mention of the need to lower the maximum tax rate, mostly applied to the inheritance of a business. This was a key part of the government bill on inheritance tax, which foundered due to the party's opposition.
The bill called for lowering the highest inheritance tax rate from 50 percent to 40 percent and abolishing a 20 percent surcharge on the value of stocks owned by the largest shareholders in a company bequeathing shares to their family members.
The maximum inheritance tax rate in South Korea is the second highest among the 38 member countries of the OECD only after Japan (55 percent). And it can rise up to 60 percent when a 20 percent surcharge is applied for major shareholders.
Excessive taxation of business inheritance weakens the largest shareholders’ investment potential and threatens their managerial control. Some of them sell off managerial rights or dispose of assets to pay inheritance tax.
However, Lee refuses to cut the maximum tax rate and lessen the tax burden for business inheritance, arguing that it would benefit only the wealthy few.
In his New Year's news conference last month, he said that companies, backed by the government, should reopen the path to growth. It is contradictory to oppose a reduction of the maximum tax rate while advocating for business-driven growth.
If he really wants to alleviate the inheritance tax burden, he should drop his opposition to lowering the highest inheritance tax rate.
