Inheritance tax top reform priority: Finance minister

Finance Minister Choi Sang-mok speaks during a conference with journalists held in central Seoul on Thursday. [MINISTRY OF ECONOMY AND FINANCE]

Inheritance tax will be the top priority for the government in the upcoming tax reform plan scheduled for release in July, Finance Minister Choi Sang-mok said Thursday.

“I would say that inheritance tax reform is the most imminent task at hand,” said the minister of finance and economy during a forum with newspaper editors and broadcasting executives held in central Seoul on Thursday.

“The inheritance tax rate was revised slightly in 2000, and has remained unchanged since, kept above the global average to date,” said Choi, adding that the government “will come up with a revision proposal in its tax reform plan set to be announced in July.”

Korea’s inheritance tax rate is capped at a maximum of 50 percent, the second-highest among the Organisation for Economic Cooperation and Development (OECD) member countries following Japan's 55 percent. However, if the benefactor is the largest shareholder of a company, an additional 10 percentage points are added, bringing the maximum rate to 60 percent.

The OECD average is estimated at around 26 percent for 19 out of 38 member countries that levy the inheritance tax on descendants who inherit estates.

The heavy inheritance tax has been cited as one of the factors behind the Korea discount, as it incentivizes major shareholders to keep the company's share price relatively low to reduce the tax bill.

“I agree with the arguments that the inheritance rate is too high and therefore needs to be lowered,” said the minister, but did not specify or confirm any details on the scope of the potential reduction.

Moreover, addressing complaints from companies regarding the recent discussion on the proposed revision of the Commercial Act — which aims to extend corporate directors’ responsibility to bolster protection for minority shareholders — Choi acknowledged their concerns over potential legal risks as “reasonable,” yet stressed that “it is important to engage in constructive discussions.”

“When we host conference calls with foreign investors, one of the most frequently asked questions was why there had been no discussions on corporate governance reform,” Choi noted.

“I hope that foreign investors understand that the discussions are actively ongoing now.”

Choi also described the latest debate between the Bank of Korea and the Ministry of Agriculture, Food and Rural Affairs over the central bank’s suggestion of ramping up agricultural product imports to tame high fruit prices as “desirable,” stressing that there is a need for “structural reform to enhance market predictability.”

"Improving the agricultural product distribution system has been a long-running challenge," said the minister. "I believe that bigger competition within the distribution structure is appropriate."

Regarding the recent Line Yahoo-Naver developments, Choi mentioned that “the government is closely monitoring the situation,” promising to “step in if the Korean company’s interests are compromised.”

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]