South Korea is taking a radical approach to twin challenges – reinvigorating its stock market and addressing a decreasing birth rate. In an innovative strategy, part of the “Corporate Value-up Programme”, the government is overhauling its inheritance tax system for the first time since 2000.
Tax breaks are set to be offered to those keeping their inherited company shares for over three years, or investing them in the local economy. By doing so, the government is hoping to bolster family wealth and pump money into Korean businesses simultaneously.
Though the approach isn’t without its detractors – who warn of wealth accumulation in few hands – the government is standing by its intentions. The belief is that by promoting long-term investment and building confidence in the stock market, socioeconomic balance can be achieved.
The ‘Korea discount’ phenomenon, a term referring to the relatively undervalued South Korean businesses, is linked to the existing high inheritance tax rates. Coupled with various other economic challenges, these issues have deterred innovation and international investment. It is hoped that this initiative will help rectify such problems.
In brighter news, changes are in the pipeline to lessen the maximum inheritance tax rate, currently at 50% for inheritances over 3 billion won ($2.17 million).
Overhauling inheritance tax: South Korea’s strategy
A lower tier of 40% is set to be introduced for inheritances over 1 billion won. This new approach, though under debate, promises a more equal wealth distribution and economic growth through increased investment.
There are also plans to raise the lower tax bracket and ease corporate tax burdens. These are expected to boost business and investment, and even promote more foreign involvement in the Korean bond market.
The government further aims to tackle the dwindling birth rate. Benefits will be provided to newlywed couples and larger families. Other strategies include broader assistance for in-vitro fertilization procedures and strengthened investment in child-care and education services. Job creation for young adults is also on the cards.
The finance ministry hopes these efforts will stabilize future families and revive the nation’s demographics. As this initiative unfolds, it will be carefully scrutinized to ensure its effectiveness in an evolving South Korea.
