Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
Korean economy loses vigor as gov't relies more on inheritance tax for revenue
Protesters hold a rally against the high inheritance tax levied by the government outside the presidential office in Seoul's Yongsan District, June 25, 2024. Korea Times file
By Yi Whan-woo
The government is increasingly relying on inheritance and gift taxes in the collection of taxable income, which, according to experts, is a worrisome sign that the Korean economy is losing vigor as its population is aging at a faster pace, according to the data and experts on Wednesday.
Data from 2024 provided by the Ministry of Economy and Finance showed that inheritance and gift taxes amounted to an all-time high of 15.3 trillion won ($10.53 billion) in 2024, marking a steady increase from 10.4 trillion won in 2020 and 14.6 trillion won in 2022.
In contrast, corporate income tax has been on a downward trajectory — falling from 103.6 trillion won in 2022 to 80.4 trillion won in 2023 and 62.5 trillion won in 2024.
The proportion of inheritance and gift taxes in the government tax revenue jumped from 1.6 percent in 2005 to 4.5 percent in 2024.
On the other hand, corporate income tax accounted for only 18.5 percent of the yearly tax revenue last year, staying below an annual average of 29.92 percent from 1974 to 2024.
The findings come as the government cut the maximum corporate tax rate from 25 percent to 24 percent under the belief that lowered taxes would encourage companies to achieve higher profits and ultimately result in increased tax contributions to the economy.
Concerning inheritance and gift taxes, the tax policy has been disputed for being punitive against rich families.
In particular, the inheritance tax policy was especially regarded as excessively harsh and potentially damaging to family businesses, with the current top rate standing at 50 percent. The rate is the second-highest among the OECD member states after Japan’s 55 percent.
“Simply put, more taxable income is related to wealth belonging to elderly people in the middle of a faster transition to an aging society,” a financial planner for wealthy retirees said on condition of anonymity. “The trend is unwelcoming for the Korean economy, considering more taxable income should come from corporate sales and other areas of economic productivity."
Shin Se-don, a professor emeritus of economics at Sookmyung Women’s University, shared a similar view.
“The tax revenue is diminishing fast in the era of low economic growth,” he said, pointing out that the government collected 336.5 trillion won in taxes last year, down from the 344.1 trillion won in 2023.
He noted that the country’s economy is projected to grow below 2 percent, which was witnessed only in times of crises, such as the COVID-19 pandemic.
“A greater reliance on inheritance and gift taxes is likely to occur as there will be more older people, and they will pass on their wealth to their children,” the professor said. “Under the circumstance, merely relying on such taxes will do no good for the sluggish economy.”