A study found that lowering the inheritance tax rate from 50% to 30% would expand Korea's domestic tax base by 202 trillion won. It effectively confirmed the issue of cutting the inheritance tax rate with empirical research data, apart from ideology.
Rep. Park Soo-young of the People Power Party (Busan Nam District), the Center for Free Enterprise, and the Korean Academy of Management held a policy seminar at the National Assembly on the 1st under the theme "Economic effects of inheritance tax reform."
Yoo Byung-joon, a professor of business administration at Seoul National University who presented the findings, analyzed the inheritance tax rate cut along with the suppression of overseas outflows of domestic capital, the return of overseas Korean asset to Korea, new inflows of foreign capital, and long-term feedback effects from domestic investment and economic growth.
The analysis showed that if the inheritance tax rate were reduced from the current 50% to 30%, Korea's total potential tax base would increase from 473.87 trillion won to 675.52 trillion won. Yoo said, "The expansion of the tax base consists of about 98.97 trillion won from curbing the outflow of domestic capital, about 48 trillion won from the return of overseas Korean asset to Korea, and about 54 trillion won from new inflows of foreign capital."
Yoo proposed a "balanced optimal tax rate" of about 22%, taking into account tax revenue, retention of domestic capital, suppression of outflows, and capital inflows. If the inheritance tax rate is kept at 22% for a long period, the annual potential inheritance tax revenue is projected to surpass the revenue under the current 50% system starting in 2037. Cumulative potential revenue would overtake the current system starting in 2043. In other words, lowering the inheritance tax rate would instead help increase revenue over the long term.
Yoo said, "There is a possibility that cutting the inheritance tax rate will form a larger tax base over the long term by curbing capital outflows and expanding domestic investment."
Rep. Park Soo-young said, "With an inheritance tax rate among the highest in the OECD (top 50%, 60% with a premium for the largest shareholder), corporations such as Chungho Nais, Unidus, Three Seven, and LOCK&LOCK Co., Ltd. that cannot pay the inheritance tax are being taken over by foreign capital, including China," adding, "As the effects of lowering the inheritance tax rate have been empirically analyzed, a realistic reform plan is needed to protect our corporations and jobs."