South Korea recently announced a series of tax cuts aimed at revitalizing the domestic stock market and addressing the country’s declining birth rate, which is currently the lowest in the world. These proposed tax revisions are part of the broader “Corporate Value-up Programme” introduced earlier this year, and represent the first major overhaul to inheritance taxes since 2000.
One of the key measures proposed by the South Korean finance ministry is the reduction of inheritance taxes, which have long been viewed as a hindrance to corporate succession and a contributing factor to the “Korea discount” – a term used to describe South Korean companies’ lower valuations compared to their global counterparts. The removal of the highest tax rate of 50% on inheritances exceeding 3 billion won, in favor of a 40% rate for inheritances exceeding 1 billion won, is expected to incentivize family-run businesses to engage in actions that would improve stock prices, without the burden of excessive taxation.
Adjusting Tax Brackets
In addition to the changes in inheritance taxes, the government plans to raise the top of the lowest tax bracket to 200 million won and to provide tax exemptions on corporate income to encourage capital returns and lower taxes on dividend income. These adjustments are aimed at creating a more favorable environment for investment and economic growth.
Recognizing the urgent need to address the falling birth rate in South Korea, the government is offering tax incentives to couples who marry between 2024 and 2026, as well as increased tax cuts for households to assist with childcare expenses. Furthermore, tax exemptions on childbirth bonuses paid by employers will be implemented to further support families and promote childbirth.
The proposed tax cuts and revisions introduced by South Korea demonstrate a comprehensive approach to addressing key economic and social challenges facing the country. By incentivizing investment, encouraging corporate succession, and supporting families, the government aims to stimulate growth, boost the stock market, and combat the declining birth rate. These measures reflect a proactive and strategic response to current economic conditions and highlight a commitment to fostering sustainable development in South Korea.