According to the bill, the government will lower the maximum inheritance tax rate by 10 percentage points to 40 percent. (Image courtesy of Pixabay/CCL)
SEOUL, July 25 (Korea Bizwire) – The government will push to reduce inheritance tax to reflect decades of changes in asset values and inflation, and to provide a tax credit for marriage and childbirth in an effort to boost the ultra-low birth rate, the finance ministry said Thursday.
They are part of a tax code revision bill proposed by the government, which also calls for extending a tax credit for investment and research and development (R&D) projects regarding future strategic technologies and postponing taxation on virtual assets.
The revision aims to revitalize the economy by securing longer-term growth momentum and stabilizing the livelihoods of the people, the ministry said.
But it is expected to cause criticism for a series of tax cuts for the rich and large conglomerates, in particular, amid tight fiscal situations, as the proposal is projected to slash the state tax revenue by 4.35 trillion won (US$3.14 billion) over the next five years.
The ministry plans to submit the bill to the National Assembly before Sept. 2 for approval.
According to the bill, the government will lower the maximum inheritance tax rate by 10 percentage points to 40 percent.
Under the current five-stage scheme, the top inheritance tax rate stands at 50 percent in cases where the value of inherited assets exceeds 3 billion won. The tax rate rises to 60 percent for those inheriting shares in big firms.
But the revision calls for reforming it into a four-stage scheme by setting the maximum rate at 40 percent for inherited assets valued 1 billion won or over.
The inheritance tax credit per child will be raised to 500 million won from the current 50 million won.
If approved, it will be the first reform of the inheritance tax system in 25 years.
“The current tax rate is the world’s second-highest level, and the current scheme fails to reflect inflation, proper asset values and other changes over the past decades,” ministry official Jeong Jeong-hoon said.
Easing tax burdens is expected to allow companies to focus more on their businesses and to devise measures to enhance shareholder returns, which will ultimately improve corporate value and make a dynamic economy, he added.
The birth rate has plummeted to an alarming 0.7, sparking fears of a national existential crisis. (Image courtesy of Yonhap)
As part of efforts to support the semiconductor and other key industries, the government decided to push for the extension of the Act on Restriction of Special Taxation, also called the K-Chips Act, through 2026.
The act, which is supposed to expire at the end of this year, centers on expanding the tax credit rate for corporate investment and R&D projects to develop new, strategic technologies.
According to the bill, the government also seeks to defer the planned taxation on virtual asset investment income by two years, though it was supposed to be implemented starting in 2025.
In response to the falling birth rate, the government pledged to provide tax credits of 1 million won per married couple, which will be in effect through 2026.
It also plans to push for tax benefits for childbirth and home purchases by married couples.
South Korea’s total fertility rate, which means the average number of expected births from a woman in her lifetime, hit a record yearly low of 0.72 in 2023.
The government has stressed the need for revising the comprehensive real estate holding tax, which is levied on owners of expensive homes.
But it decided not to include the issue in this year’s proposal, as the Yoon Suk Yeol government markedly lowered the property tax in 2022 and any additional cut would push home prices up further, officials said.
Critics argue that the bill aims to cut taxes for large conglomerates and the rich, though the country is experiencing a tax revenue shortfall.
During the January-May period, tax revenue fell 6.3 percent to 151 trillion won due to the sharp decline in the government’s collection of corporate taxes on their weak performances.
As the revenue shortfall continues, there are growing concerns that a third year of tax cuts will weaken the fiscal base. (Yonhap)
In 2023, the country’s tax revenue fell a record amount of around 52 trillion won on-year to come to 344.1 trillion won on weak corporate performance and an economic slowdown.
“We are facing a difficult situation in terms of tax revenue, but things are expected to get better next year as rising exports will boost corporate performance and policy measures for promoting investment would lead to desirable effects in the long run,” Finance Minister Choi Sang-mok told reporters.
“The government will continue efforts to enhance financial health, while extending necessary spending for economic growth and for the people,” Choi added.
It seems far from easy for the government’s proposal to win parliamentary approval, given the current opposition-controlled National Assembly, according to some experts.
(Yonhap)
