Korea’s inheritance tax is too high compared to G7 countries, leading to the Korea discount (the undervaluation of the Korean stock market) and discouraging investment, according to a proposal to adjust it to a reasonable level in this year’s tax law revision.
“Over the past 30 years, G7 countries have gradually lowered their inheritance taxes, while Korea has increased its inheritance tax, which has led to many negative side effects such as wealth transfers to overseas countries and illegal tax evasions,” the Korea Chamber of Commerce and Industry (KCCI) said in its 2024 Tax System Improvement Task Recommendation on March 4. “We need to rationally improve the excessive inheritance tax system and come up with a tax system that can induce corporate investment to boost Korea’s industrial competitiveness and increase private consumption.”
The KCCI recommended reforming the excessive inheritance tax, which has been pointed out as a cause of Korea’s disadvantage rather than promoting economic equality, in light of developed countries’ practices. Korea’s top inheritance tax rate was raised from 45 percent in 1997 to 50 percent in 2000, and the effective inheritance tax rate is 60 percent, the highest in the world, due to the largest shareholder surcharge applied to companies over a certain size.
In contrast, G7 countries have either abolished inheritance taxes or reduced their highest rates. Canada abolished its inheritance tax in 1972 and switched to a capital gains tax to eliminate double taxation. The United States lowered the rate from 55 percent to 50 percent to 35 percent, then fixed it at 40 percent in 2012. Germany, a country with many long-living companies, lowered the rate from 35 percent to 30 percent in 2000, and Italy abolished its inheritance tax in 2001 after reducing it from 27 percent to 4 percent in 2000, but has kept it at 4 percent since 2007 due to fiscal shortfalls. The United Kingdom, the first country to introduce an inheritance tax, has recently been discussing a significant reduction in the top rate of its inheritance tax from 40 percent to 20 percent.
The KCCI also highlighted the issue of taxation methodology. Of the 38 OECD member countries, 24 have inheritance taxes, 20 of which are based on the amount of property each heir receives, while inheritance taxes of four countries including Korea are based on the deceased’s property, making inheritance taxes more burdensome.