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The right direction, but discretion is needed

Published: 17 Jun. 2024, 20:15

The government laid out how it will revise the laws on property ownership and inheritance taxes. In a TV news program, Sung Tae-yoon, the president’s policy chief, said that the comprehensive property ownership tax should be levied on owners of a single home of exceptionally high value or multiple homes amounting to a sizable value. He announced a plan to lower the maximum rate for the inheritance tax to 30 percent, which is in line with the average rate of OECD members.

The government is also considering the idea of integrating the comprehensive property ownership tax into the universal property tax and imposing an inheritance tax based on the capital gains reaped by each heir of a property, rather than the total inheritance value.

The revenue from the comprehensive property ownership tax finances local governments. Instead of scrapping the tax, the government will narrow the scope to the super-rich. For the first time, the government specified its goal of lowering the maximum inheritance tax rate, which nears 60 percent in Korea. Many will cheer at the revisions to the “killer” property and inheritance taxes. Many single homeowners will be also relieved if the comprehensive property tax only applies to the super-rich.

Heirs are subject to taxes if they inherit assets worth more than 1 billion won ($719,942). Since the average price of apartments in Seoul reached 1.2 billion won, many citizens are subject to the heavy inheritance tax when they inherit an apartment from their parents. The tax originally targeting the super-rich instead dealt a heavy blow to the middle class.

Taxes are pivotal to government finance. They should be updated, and the impact of lowered taxes on revenue should also be closely studied. Too many tax breaks can shake the integrity of public finance. The policy chief claimed that the impact from the changes in comprehensive and inheritance taxes won’t be big, but the government collected 4.6 trillion won in comprehensive property tax and 8.5 trillion won in inheritance tax last year. The government must examine the impact on tax revenue and find effective ways to complement the shortfall when fine-turning revisions.

Any changes to the tax code requires a review and endorsement from the legislature, the dominant opposition party. The opposition agrees on the need to ease the inheritance tax and taxes for single homeowners, but many reject the idea of lowering taxes for the wealthy. There are more inheritance taxpayers due to the rise in asset prices, but the number still remains low. In 2022, the inheritance tax was levied on 4.5 percent of those who left inheritance. Rationalizing taxes to better reflect current conditions will help the economy as well as people.