Inheritance Tax Reform Shelved—Tax Subcommittee Says Immediate Adoption of Acquisition-Based System Not Feasible

(Seoul=Yonhap Infomax) Nam Kyoung Hwang — South Korea’s National Assembly Strategy and Finance Committee has decided to put on hold a proposal to overhaul the country’s inheritance tax regime, shelving plans to shift from the current estate-based system to an acquisition-based model.

The committee convened its Tax Subcommittee on the 25th to discuss amendments to the Inheritance and Gift Tax Act, which included the transition to an inheritance acquisition tax system.

Park Soo-young, a lawmaker from the People Power Party and chair of the Tax Subcommittee, told reporters during the meeting, “We have concluded that it is impossible to push forward with the inheritance acquisition tax at this time. We will conduct further research and hold public hearings before proceeding.”

The proposed inheritance acquisition tax would levy taxes based on the assets each individual heir receives, rather than on the total estate left by the deceased. This approach could lower the tax base for each heir if the inheritance is divided among multiple recipients, potentially reducing the overall tax burden.

While some argue that the acquisition-based system would enhance tax equity compared to the current regime, critics point out that dispersing inherited assets among several heirs could reduce total tax revenue, especially given the progressive tax structure where higher tax rates apply to larger taxable amounts.

“There are many technical challenges, and because of the progressive structure, applying the acquisition-based system would automatically lower the effective tax rate and reduce tax revenue,” Park explained. “It is estimated that tax revenue would decrease by more than 2 trillion won ($1.5 billion). Introducing a system that reduces revenue by 2 trillion won is not feasible under current circumstances.”

He added, “If we reduce various complex deductions, we could limit the revenue loss to within 1 trillion won ($750 million). We will conduct further research and hold public hearings to pursue a revenue-neutral approach.”

nkhwang@yna.co.kr

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