Business leaders grapple with Korea's high inheritance tax

Vice Prime Minister and Finance Minister Choo Kyung-ho attends a ministerial meeting at Government Complex Seoul, Monday. Yonhap

Hyundai Motor Group Executive Chair Chung Euisun, left, LG Group Chairman Koo Kwang-mo

The government should reduce inheritance tax on businesspeople, as the world’s highest related tax rate of up to 60 percent in Korea is feared to adversely affect companies' ability to create jobs and increase investment, company officials and scholars said Tuesday.

The financial burdens of inheritance tax here are high enough that tycoons use loans to to pay. Experts argued that this goes against the global trend, as most developed nations in Europe and the United States are moving to alleviate business leaders’ tax burdens.

“European countries, such as Sweden and Norway, have abolished the inheritance tax, and the U.S. and a group of other developed European countries are discussing the agenda of cutting the tax, so local companies there enhance their global competitiveness,” Kim Dae-jong, a professor of business administration at Sejong University, said.

Officials from Korea’s major conglomerates also argued the nation’s economy is feared to take the biggest hit unless the current tax system is revised on par with the global standard.

“The excessive level of inheritance tax may end up causing overall economic loss for Korea, as less firms will be willing to make investments and create more jobs, as some business leaders still face a tremendous amount of tax burden,” an official from one of Korea’s top-tier conglomerates said on condition of anonymity.

For instance, Hyundai Motor Group Executive Chair Chung Euisun is estimated to pay at least 2 trillion won ($1.52 billion) in inheritance tax. Chung is the third-generation heir of the nation’s largest automaker.

LG Group Chairman Koo Kwang-mo recently settled his inheritence tax payment in installments over the past five years. The amount surpasses 700 billion won.

Bereaved families of late Nexon founder Kim Jung-ju ended up choosing tax payment in kind with shares of Nexon’s holding firm, NXC, worth 4.7 trillion won out of 6 trillion won levied on them as inheritance tax.

This prompted calls for the Korean goverenment to address what some believe to be an excessive level of inheritance tax affecting mainly chaebol families.

Deputy Prime Minister and Finance Minister Choo Kyung-ho also recently raised the agenda, saying that it is high time for the government to revise the outdated inheritance tax system.

“Korea’s inheritance tax rate is the highest level among OECD member countries,” Choo told lawmakers last month. “A total of 14 out of 38 nations do not levy any inheritance tax at all. If the National Assembly submits any revision act regarding the issue, the government will also actively discuss the agenda.”

According to a poll conducted by the Korea Enterprises Federation, more than 70 percent of respondents voted in favor of reducing the maximum inheritance tax rate or abolishing the system and changing it into a capital gains tax. The respondents include a group of 211 professors of economics and business administrators in Korea.