Korea's political parties collaborate on relaxing inheritance tax deductions

Regardless of the government's announcement on the 'conversion of inheritance tax', the ruling party's proposal to immediately process a legislative amendment focusing on relaxing the inheritance tax deduction has emerged from the People Power Party. This stance slightly differs from the government's position of abolishing the spousal inheritance tax while simultaneously reforming the overall tax system. Since both the ruling and opposition parties agree on raising the minimum threshold for lump-sum and spousal deductions, they are advocating to process the already proposed legislative amendment in the National Assembly.

Song Eon-seok, the chairperson of the National Assembly's Committee on Strategy and Finance, released a statement on the 14th, saying that 'discussions on the inheritance tax reform, including the expansion of deduction limits, are a separate matter from the government's announcement on the 'conversion to inheritance tax' on March 12.' He noted that the transition to inheritance tax could only be implemented by 2028 to allow for adequate preparations. In the meantime, the excessive inheritance tax burden on the middle class must be alleviated.

Song noted that 'the discussion on expanding (lump-sum and spousal) deduction limits, which has been raised since the last regular session, must take place immediately,' adding, 'using the government's announcement on the transition to inheritance tax as an excuse to oppose the current amendment to inheritance tax laws is akin to covering the sky with a hand.'

The Democratic Party also holds the position of adjusting the deduction limits. Im Kwang-hyun, who was the representative proponent of the party's stance on inheritance tax, criticized the Ministry of Economy and Finance's announcement on the introduction of inheritance tax on the 12th, saying it is 'a tax cut that benefits only the high-asset individuals with estate values exceeding 5 billion won' and emphasized that it would take at least two years to prepare for its introduction. He proposed to swiftly process the adjustment of spousal and lump-sum deductions first.

◇Agreement on relaxing deductions between ruling and opposition parties… Lee accepts 'abolition of spousal deduction'

According to the current inheritance and gift tax law (hereinafter referred to as inheritance/gift tax law), the minimum thresholds for lump-sum and spousal deductions are each 500 million won. While house prices have risen significantly due to inflation, the deduction standards have remained unchanged for over 30 years. Consequently, there have been calls from the political community to change the law to alleviate the tax burden on the 'middle class with only one house.'

Both ruling and opposition parties have already proposed amendments to the inheritance/gift tax law to increase deduction limits. Although there are numerical differences, the intentions and directions are the same. In the People Power Party, Song proposed a plan for a lump-sum deduction of 1 billion won and a spousal deduction of 1 billion won, while in the Democratic Party, Im, a former deputy of the National Tax Service, proposed a lump-sum deduction of 800 million won and a spousal deduction of 1 billion won.

However, negotiations have not progressed since the end of last year’s discussions in the taxes subcommittee of the Committee on Strategy and Finance. This is due to clashes between the ruling and opposition parties over issues such as 'reducing the top tax rate (from 50% to 40%)' and 'expanding the inheritance tax deduction for businesses.' While the government and ruling party advocated for the reduction of tax rates, the opposition party opposed it, labeling it 'a tax cut unrelated to the middle class.' Consequently, negotiations that had previously built consensus on relaxing deductions ended in failure. Both legislative proposals are currently pending in the plenary session.

The shift in atmosphere occurred when Lee Jae-myung, the leader of the Democratic Party, accepted the ruling party's proposal to abolish the spousal inheritance tax. The People Power Party also expressed that it would be possible to discuss the reduction of the top tax rate later. However, following the government's announcement of a plan to change the inheritance tax system from inheritance tax to inheritance tax, it led to renewed disputes between the ruling and opposition parties. There were also suggestions that the ruling party shifted the issue to regain the 'tax cut initiative' taken by Lee.

◇Delay in inheritance tax reform attributed to 'your fault'

According to ChosunBiz's coverage, the ruling and opposition party secretaries of the Committee on Strategy and Finance met privately the previous day and decided that once their respective parties create a new amendment including the 'abolition of spousal inheritance tax,' they would open the taxes subcommittee as soon as the proposals are submitted. The ruling party will be represented by Kwun Young-se, the chair of the emergency response committee, while the opposition party will be represented by Im. The existing legislative proposal includes 'raising the spousal inheritance deduction,' necessitating a modification of that portion.

However, Chairperson Song stated, 'The amendment proposed by Im and me to expand the inheritance tax deduction limits is already pending in the plenary session,' adding, 'Under parliamentary law, it could be immediately processed through a modification resolution in the plenary session without a separate taxes subcommittee.' He also noted, 'Although both parties agreed on the unlimited deduction for spousal inheritance tax, the Democratic Party continues to ignore requests to hold the taxes subcommittee.'

In response, Jeong Tae-ho, the Democratic Party's secretary of the taxes subcommittee, stated during a phone call, 'Both parties have agreed on relaxing the spousal and lump-sum deductions and abolishing the spousal inheritance tax, and discussions have also emerged regarding the inheritance tax; however, there are no actual proposals to review.' He further mentioned, 'Both parties agreed to convene the taxes subcommittee as soon as they submit new legislative proposals, but Chairperson Song keeps falsely claiming that the opposition party is opposed.'