Discussions on amending the inheritance tax law, focused on the complete abolition of the spouse inheritance tax and the expansion of individual tax credits, are gaining momentum. The ruling party has retreated and stated it will discuss lowering the highest tax rate and eliminating the additional charges for major shareholders later. The opposition party also increased the possibility of reaching an agreement this month by excluding the inheritance tax amendment from the fast track (expedited processing agenda).
According to political sources on the 11th, the ruling and opposition parties are expected to hold a tax subcommittee meeting of the Strategy and Finance Committee early next week to resume discussions on the inheritance tax law. Ahead of that, the ruling party's secretary, Park Soo-young, a member of the People Power Party, and the opposition's secretary, Jeong Tae-ho, a member of the Democratic Party, are scheduled to communicate about the tax subcommittee's agenda and schedule this week. Park noted, "It seems we will discuss this in the tax subcommittee on the 18th or 19th next week."
The People Power Party plans to prioritize processing the complete abolition of the spouse inheritance tax and the expansion of individual tax credits, which both parties have agreed upon. The Democratic Party also decided not to designate the inheritance tax amendment as a fast track agenda. The focus has shifted to prioritizing negotiations between the parties.
The swift advancement of discussions on amending the inheritance tax law is due to the ruling party changing its stance to consider discussing the 'lowering of the highest tax rate' later. The ruling party has been pushing to reduce the current highest inheritance tax rate of 50% to 40%, and to eliminate the additional valuation system applied to the major shareholders of corporations. They have also maintained that the inheritance tax system needs to ease the tax burden significantly for owners of small and medium-sized enterprises when passing the business to their children. They see the expansion of individual tax credit limits as essential for maintaining corporate competitiveness.
As the opposition strongly opposed, labeling it "a tax cut for the ultra-wealthy," and discussions stalled, they adjusted their strategy in the National Assembly. The sudden response of Lee Jae-myung, leader of the Democratic Party, to the ruling party's proposal for the 'complete abolition of the spouse inheritance tax' also fueled progress in discussions. Analysts suggest that with the likelihood of an early presidential election increasing, both parties are competing over 'tax cut policies' while considering middle-class voters.
It seems both parties will easily find common ground on the proposal to increase the blanket deduction amount for inheritance tax. The People Power Party has proposed raising the current amount of 500 million won to 1 billion won, while the Democratic Party has proposed expanding it to 800 million won.
The government's proposal to switch to an inheritance acquisition tax will also be a topic of discussion this week. The current inheritance tax system is based on the total value of the deceased's property and is assessed as an inheritance tax. The proposal aims to change this to a method where the tax is levied based on the scale of assets inherited by each inheritor. There have been criticisms that the current inheritance tax system applies a higher progressive tax rate than the actual inherited assets, causing a significant burden. If switched to the inheritance acquisition tax system, it is likely to reduce the taxable assets and lower the tax burden.
The proposal to switch to an inheritance acquisition tax is expected to be discussed separately from the current inheritance tax amendment. The conversion to the inheritance acquisition tax requires a complete overhaul of the legal system, so it necessitates deliberation on the existing taxable standard system and the deduction amounts per inheritor. Song Eon-seok, chairman of the Strategy and Finance Committee, stated in a call with ChosunBiz, "If the inheritance acquisition tax plan is to be specified, it will take more time than expected. It should be reviewed in a different time frame and at a different level."
However, there remains a possibility of conflict between the ruling and opposition parties regarding raising the children's deduction limits.
The current children's deduction for inheritance tax is 50 million won per person. The government and the ruling party are pushing for a legislative amendment to raise this to 500 million won, ten times the current level. The ruling party is reported to propose expanding it to 200 million won. Park noted, "Isn’t 50 million won too unrealistic? The children's deduction limit should also be raised somewhat (to align with the abolition of the spouse inheritance tax)."
In contrast, the opposition party strongly opposes raising the children's tax credit limit, arguing that it will lead to 'wealth succession' and result in a tax cut for the wealthy. A key official from the opposition stated, "If an expansion of the children's deduction limit comes up, it will be difficult to reach an agreement," adding, "If the ruling party brings up the children's deduction limit, it should be seen as insincere. If they keep adding other items, we may have to fast track it again."