[fn Square] Inheritance Tax Reform Ends with Only Empty Gestures

Tax issues are a perennial topic during every presidential election. This has been the case throughout Korea’s electoral history. Fierce debates have centered on welfare without tax increases and the appropriateness of real estate tax systems. The most recent election was no different. Even amid the whirlwind of impeachment and a snap election, both the People Power Party and Lee Jae-myung, the Democratic Party of Korea (DPK) candidate, put inheritance tax reform on the agenda. It was unusual for both parties to simultaneously pledge to ease the inheritance tax. As of this year, the average price of an apartment in Seoul is said to be around 1.3 to 1.5 billion won. Under the current inheritance tax system, with a flat deduction of 500 million won and a spousal deduction of 500 million won, critics argued that surviving spouses could be left without a home. The DPK proposed raising these thresholds to 800 million and 1 billion won, respectively, so that up to 1.8 billion won could be inherited tax-free. President Lee Jae-myung stated at a press conference marking his first 100 days in office, 'It is too harsh to force people to sell their homes just because they cannot afford to pay the inheritance tax.' The People Power Party even proposed the complete abolition of the spousal deduction limit.
With President Lee’s stance unchanged after taking office, expectations grew for the first expansion of the personal deduction limit for the inheritance tax in 28 years. However, an unexpected turn of events occurred. The reform was omitted from the tax-related bills that passed the National Assembly of the Republic of Korea alongside next year’s budget on the 3rd. It failed to clear the Strategy and Finance Committee. The proposed amendment to the Inheritance and Gift Tax Act, which would have shifted the inheritance tax system from an estate tax to an Estate Acquisition Tax for the first time in 75 years, was also halted.
Why did the momentum for inheritance tax reform come to a halt? Let’s revisit the election period. There was no better way to win over Seoul’s middle-class voters than by promising tax cuts. Despite the election being held after impeachment, partisan logic remained strong. The choices of 'swing voters' were crucial. Lowering the inheritance tax was seen as the most effective card to win over middle-class households in Seoul—a phenomenon dubbed the 'politics of the Han River belt.' The issue was highly volatile. The policy differences between the two parties were minimal. The DPK, which garnered praise from moderates for its bold shift to the right, had the advantage. In the 20th presidential election in 2022, Lee Jae-myung lost Seoul by about 310,000 votes, but in the 21st election held this June, he won by approximately 2.9 million votes.
Politics is ever-changing. The National Assembly of the Republic of Korea, sensitive to public opinion, is selective. Officially, the inheritance tax reform was halted due to concerns over reduced tax revenue. Introducing the Estate Acquisition Tax could reduce revenue by 2 to 3 trillion won, and raising the inheritance tax deduction limits could cut an additional 1.2 trillion won. However, this reasoning is questionable. Korea’s annual national tax revenue approaches 400 trillion won. Whether through discovering new tax sources or restructuring expenditures, there are ways to respond.
The answer lies in the political calendar. Local elections will be held next year. Easing the inheritance tax could spark controversy over tax breaks for the wealthy, posing a burden for the ruling party and government. Both expanding the personal deduction and introducing the Estate Acquisition Tax are fundamentally about reducing taxes. If the debate expands beyond the Han River belt to the entire country, calls for strengthening the inheritance tax gain traction. According to the 16th annual fiscal panel survey by the Korea Institute of Public Finance (KIPF), only about 100 million won in inherited assets was widely supported as tax-exempt. Opinions favoring taxation from as low as 300 million won, far below the 1 billion won inheritance tax threshold, were dominant. Some analysts say that by last July, when the government’s tax reform bill was submitted to the National Assembly of the Republic of Korea, the ruling party had already begun to worry about backlash from its traditional base. The People's Solidarity for Participatory Democracy (PSPD) submitted its '2025 Tax Reform Bill Opinion' to the Office of the President of South Korea in early July, arguing that inheritance tax relief should be reduced to curb the intergenerational transfer of wealth.
It is often said that half of taxation is politics. The phrase 'no taxation without representation,' which sparked the American Revolutionary War, illustrates this point. This principle has endured to this day, becoming the 'principle of no taxation without law' that most democracies follow. Increases or cuts in taxes are the responsibility of the National Assembly of the Republic of Korea, composed of the people’s representatives. This is also stipulated in Article 59 of the Constitution of the Republic of Korea. Therefore, given the nature of tax policy, it is not fair to unconditionally criticize the ruling DPK’s decision.
However, the fact that the inheritance tax has become more of a penalty than a tax must be addressed. It is also the duty of the National Assembly of the Republic of Korea. What was once a 'special tax' for the wealthy has become a 'general tax' that even the middle class now worries about. When owning a single home becomes a source of anxiety, it not only burdens the broader economy but also creates significant side effects. Rather than being trapped in the narrative of tax breaks for the rich, the tax system should be reformed to reflect changing economic conditions. It is also misguided to assume that the tax system preferred by the majority is always the most desirable from a socioeconomic perspective. There is hope for a new, modernized inheritance tax that fits the times.
mirror@fnnews.com Kim Kyu-sung Reporter