The government's efforts to ease inheritance taxes, including lowering the maximum inheritance tax rate and abolishing the premium evaluation for major shareholders (management rights premium), as well as increasing the child tax credit, have been thwarted.
The Financial Investment Income Tax, which the Democratic Party of Korea had shown a forward-looking attitude toward, has been completely abolished. The taxation on virtual assets, which was scheduled to be implemented early next year, has also been postponed by two years.
The tax incentives to promote shareholder returns, including the separation taxation of dividends, fell through. The Individual Savings Account (ISA) maintains its current contribution limit of 20 million won per year (total 100 million won) and a tax-exempt limit of 2 million won (4 million won for low-income families and farmers).
On the 10th, the National Assembly held a plenary session and made decisions regarding this year's tax revision bill. According to materials related to the tax revision released by the Ministry of Strategy and Finance after the plenary session, 10 out of 13 tax revision bills submitted by the government, including the Income Tax Act and Corporation Tax Act, were passed in their original form. However, the Value-added Tax Act and the Restriction of Special Taxation Act were approved with amendments, while the Inheritance and Gift Tax Act was rejected.
◇ Fall of inheritance tax rate reduction... continuation of major shareholder premium evaluation
The government's plan to lower the maximum inheritance tax rate, which is among the highest in the OECD, from 50% to 40% and to abolish the major shareholder premium evaluation, where an additional 20% premium is taxed on the stock inheritance of major shareholders due to 'management rights premium,' has not been realized.
The current taxation standard of a 50% maximum rate for amounts exceeding 3 billion won remains in the inheritance tax system, and the lower tax base threshold of 1 billion won continues to be applied. The major shareholder premium evaluation criticized for increasing the inheritance burden on businesspeople will also continue.
The plan to expand the child tax credit in inheritance tax to '5 billion won per child' will also remain as it is. The current child tax credit is 50 million won per child.
The plan to expand the business succession deduction for startups and moving corporations in value-up, scale-up, and opportunity development zones (maximum 6 billion won to 12 billion won) also fell through.
The Democratic Party of Korea criticized the government's efforts to reform the inheritance tax as a 'tax cut for the wealthy.' During the opposition debate before the vote, Democratic Party lawmaker Oh Gi-hyeong said, 'The core of this government's tax cut policy is the inheritance tax law,' and 'The main content of the amendment is also a 'super-rich tax cut.'' According to the National Assembly Budget Office, if the government's amendment to the inheritance and gift tax is implemented, total national tax revenue will decrease by 20.1862 trillion won over the next five years from next year. Oh emphasized that a significant portion of the tax reduction would ease the tax burden on high-income individuals.
◇ Full abolition of the financial investment tax, two-year postponement of virtual asset taxation
The ruling and opposition parties reached an agreement on the financial investment tax and virtual asset taxation, concluding with abolition and postponement, respectively.
The Income Tax Act, which was scheduled to take effect on Jan. 1 next year, included the implementation of a financial investment tax that imposes a 20–25% tax on profits for investors who earn more than 50 million won annually from stocks, bonds, funds, derivatives, etc. The taxation on virtual assets, which imposes a 22% tax rate (including local tax) on the amount exceeding 2.5 million won in virtual asset investment income, was also slated to be implemented.
Among these, the ruling and opposition parties have decided to completely abolish the financial investment tax and postpone the implementation of virtual asset taxation to Jan. 1, 2027, a two-year delay.
The government and ruling party argued that the financial investment tax would shrink the stock market and harm 'individual investors,' and that repeated deferments would increase market uncertainty. They advocated for complete abolition rather than repeated postponements.
While there were initially many opposing opinions in the opposition party, Lee Jae-myung, the leader of the Democratic Party of Korea, suggested 'abolition,' aligning the party's opinion towards 'abolition.' The decision is interpreted as considering the votes of investors.
◇ Failure of separate taxation on dividend income.. maintaining current ISA contribution limits
The Restriction of Special Taxation Act and the Value-added Tax Act were approved with amendments. The government's push for 'separate taxation on dividend income' was met with opposition from the opposition party criticizing it as a 'tax cut for the wealthy,' preventing its legislation. The Restriction of Special Taxation Act, which passed the plenary session, omitted the shareholder return promotion tax system, which initially included a 5% corporation tax credit for corporations expanding shareholder returns and separate taxation on dividend income for individual shareholders.
The current model for supporting integrated employment tax credits will remain unchanged. The government had categorized regular employment (full-time employees working continuously for over one year) and flexible employment (employment outside regular employment, such as part-time or temporary work) and sought to expand total support for ongoing employment and provide concentrated support for two years, while providing proportional support for increase in payroll expenses in flexible employment and extending support to temporary and very short-term workers, but this was not reflected in the amendments.
The government will also maintain the current ISA contribution limit of 20 million won per year, rejecting the plan to expand the limit to 40 million won per year for the asset growth of the middle class.
The plan to include men within the scope of career-interrupted individuals eligible for tax support upon employment was also not realized.
The measures to reduce the tax credit for electronic filing and expand the scope of tax credit for overseas resource development investment will continue as they are.
Amendments to the Value-added Tax Act aimed at reducing the tax credit rate for using credit cards and similar means were also not realized, maintaining the current level.