[Op-Ed] Time to Fuel Business Growth by Easing the Inheritance Tax

Average Inheritance Tax Rate Among OECD Members Is 26%; Korea’s Top Rate Reaches 60%

42% of Small and Medium-Sized Business Owners Consider Selling or Shutting Down Due to Inheritance Tax

Samsung and LG Faced Governance Instability During the Process of Paying Inheritance Tax

For Korean businesses, inheritance tax is one of the most feared burdens. This is because Korea’s inheritance tax rate is among the highest in the world. As a result, inheritance tax is creating a sense of crisis not only for management succession but also for the continued survival of companies themselves.

Korea’s inheritance tax is overwhelmingly severe compared to that of other countries. Even Japan, which has the highest inheritance tax rate among OECD member countries at 55%, has a lower effective tax rate than Korea when deductions are applied. By contrast, in Korea, when the surtax on shares held by the largest shareholder is added, the inheritance tax rate can reach as high as 60%. Considering that the average inheritance tax rate among OECD member countries is 26%, Korea’s inheritance tax burden is clearly among the highest in the world.

Korea’s inheritance tax is now determining whether companies can survive. In a survey conducted last December by the Korea International Trade Association of 799 small and medium-sized business owners, about 42% of respondents said they had considered selling their businesses or closing them down because of inheritance tax issues. High inheritance tax is now shaking group governance structures and causing confusion over strategic direction not only for SMEs but even for large corporations during the process of management succession.

In fact, both Samsung and LG experienced governance instability in the course of paying inheritance taxes after the deaths of their former chairmen. In 2020, the Samsung family was left with a 12 trillion won inheritance tax bill on the 26 trillion won estate of the late Samsung Chairman Lee Kun-hee, forcing them to sell about 3 trillion won worth of shares. LG also faced a massive inheritance tax burden following the death of former Chairman Koo Bon-moo in 2018, leading to a prolonged tax dispute lawsuit. In this way, even major conglomerates have found themselves inevitably forced to dispose of shares and engage in legal battles with the tax authorities to deal with high inheritance taxes, threatening management stability.

From a macroeconomic perspective, the view that high inheritance tax is one of the main causes of the Korea discount is a persuasive one. To reduce inheritance tax burdens, companies are often compelled to keep their stock prices intentionally low or to actively rely on share sales or borrowing to secure funds for tax payments. This ultimately acts as a negative factor that hinders proper valuation and improvement of corporate value in the capital market.

As the harmful effects of inheritance tax have grown, the government has also drawn its sword, but it still has not swung it. As the cries of businesses driving the Korean economy grow louder by the day, the current government identified inheritance tax reform as a key policy task and promised reform. However, as some have raised concerns about “tax cuts for the rich,” it has once again hesitated. We must not overlook the fact that while the government delays, Korean businesses are collapsing one by one.

The government should acknowledge the burden that high inheritance tax rates impose on businesses and ease those rates in order to enhance management stability and allow firms to realize their value. At the very least, the tax rate should be adjusted to a level comparable to that of other OECD member countries.

This is the moment when an outdated system must be changed to fit the times. By easing inheritance tax, we must help Korean businesses leap into larger markets within a stable management environment. At a time when Korean companies are leading the world, it is the government’s role to remove the obstacle of inheritance tax and pave a smooth road ahead.

Minjeong Lim, Intern Researcher, Center for Free Enterprise (CFE)

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Original title: [칼럼] 상속세 완화로 기업의 大도약 지원할 때

Author: Min-jeong Lim

Date: 2025-02-04

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&idx=27303