A Study on the Problems and Improvement Direction of
Korea's Inheritance Tax System 2025_01Youngho Hong, Real Estate
Researcher, Yangpyeong County, Korea
Abstract
This study analyzes the major problems of the Korean inheritance tax system
and suggests ways to improve it. The inheritance tax was introduced with
the goal of reducing social inequality and reducing the imbalance of
inherited wealth, but it has caused a variety of problems, including placing a
disproportionate tax burden on high-wealth heirs and contributing to tax
avoidance and tax evasion. The study highlights the key issues of inheritance
tax's excessive tax rate, inheritance tax avoidance and evasion, imbalance of
tax deductions and exemption limits, widening social inequality in
inheritance tax, and enforcement efficiency, and suggests policy
improvements to address them. The suggested reforms include
differentiating tax rates, supporting family inheritance, strengthening tax
audits, increasing the exemption limit, redefining the purpose of inheritance
tax, and establishing a digitalized filing system. This study can be used as a
basis for improving the Korean inheritance tax system.
Keyword
inheritance tax, Korea, tax rate differential, tax avoidance, tax evasion, tax
avoidance, , tax exemption , social , tax audit, tax valuation, tax reform,
taxation, taxation reform2 --
Introduction
South Korea's inheritance tax system was introduced to address social
inequality and reduce the imbalance of inherited wealth. However, the
inheritance tax places a disproportionate tax burden on wealthy heirs and
has been criticized for tax avoidance and tax evasion. In addition, the
fairness, efficiency, and complexity of the tax calculation process have been
criticized. This study analyzes the problems of the Korean inheritance tax
system and suggests ways to improve it.
1. Heavy estate tax burden
The disproportionate burden of inheritance tax is caused by a number of
factors, with the potential risk of exacerbating social inequality. First, issues
with how assets are valued can cause inheritance taxes to increase as asset
values increase. In China, for , studies have shown that inheritance has a
significant impact on wealth distribution.1) This concentration of wealth can
lead to an imbalance in the inheritance tax burden.
Second, structural problems with the estate tax system can place an undue
burden on some classes. If the progressive structure of the inheritance tax
does not work well, middle- and lower-income families may feel a
disproportionately greater burden than wealthy families. Research on wealth
tax policy in the United States has emphasized that a progressive tax
structure can contribute to fairness, but that detailed design is critical.2)
Third, inadequate estate tax exemption limits and rates can exacerbate the
tax burden. Research in this area shows that the economic arguments for
and against wealth taxes are both pro and con, indicating the need for 3 --
ongoing debate on the design and enforcement of the tax system.3)
Tax reform and fairer wealth distribution policies are essential to address
these issues. In particular, research on the fiscal and equity impacts of social
tax expenditures in the European Union underscores the importance of tax
policy in mitigating social inequality.4) Finally, the fairness of the inheritance
tax is
1) Wei, H., & Yang, Z. (2021). The Impact of Inheritance on the Distribution of
Wealth: Evidence from China. Review of Income and Wealth.
2) Nguyen, H. P., & Khieu, H. (2021). Progressive wealth tax: An inquiry into
Biden's tax policy. Economic Analysis and Policy.
3) Adam, S. (2021). The economic arguments for and against a wealth tax.
Fiscal Studies.4 --
There should be ongoing discussion and policy feedback to raise awareness,
which can be seen in the experimental evidence on tax preferences in
various countries.5)
The problem of a heavy inheritance tax burden cannot be solved by simply
adjusting tax rates, but requires a more comprehensive policy approach. This
will contribute to a fairer distribution of wealth and reduce social inequality.
Problem
Currently, inheritance tax in South Korea is at a high rate of up to 50%,
depending on the size of the estate. This creates a significant tax burden for
wealthy heirs, especially in the case of business inheritances, which can result
in the need to sell assets or spin off parts of the business to pay the
inheritance tax. This burden can make family succession difficult and hinder
the continued growth of a business.
Complementarities
1. Tax Rate Differentiation
Tax rate differentials are policies that apply different tax rates based on
income or asset size, with the goal of reducing economic inequality and
increasing social equity. These schemes can affect the economy and society
in a number of ways.
First, a progressive tax structure can reduce the tax burden on lower income
groups by taxing higher income groups more heavily. This promotes a fairer
distribution of fiscal resources and can contribute to reducing social
inequality.6) This approach is also seen in the discussion of raising on highincome
earners in the United States' wealth tax policy, which can be seen as 5 --
an attempt to increase social equity.7)
Second, differentiated tax rates can drive economic stimulus. Taxes for certain
industries or regions
4) Barrios, S., Moscarola, F. C., Figari, F., Gandullia, L., & Riscado, S. (2020).
The fiscal and equity impact of social tax expenditures in the EU. Journal
of European Social Policy, 30, 355-369.
5) Schechtl, M., & Tisch, D. (2023). Tax principles, policy feedback and selfinterest:
cross-national experimental evidence on wealth tax preferences.
Socio-Economic Review.
6) Adam, S. (2021). The economic arguments for and against a wealth tax.
Fiscal Studies.
7) Nguyen, H. P., & Khieu, H. (2021). Progressive wealth tax: An inquiry into
Biden's tax policy. Economic Analysis and Policy.6 --
Benefits can promote economic growth, which can be particularly useful
during times of economic recession. For example, research on the impact of
social tax expenditures on fiscal equity in the European Union shows that
these tax benefits are important in promoting economic equity.8)
Third, tax rate differentiation can lead to increased tax revenues, which can
lead to investment in public services and social welfare. This can strengthen
the social fabric and provide economic stability in the long run. However,
excessive tax rate differentiation can have adverse effects, such as wealth
transfer and tax evasion.9)
Tax rate differentiation is a complex challenge that requires simultaneous
consideration of economic equity and efficiency. It can be applied differently
across countries, depending on a variety of political and economic factors,
and requires ongoing debate about the design and implementation of tax
policy.10)
Tax rate differentials are an important tool for addressing economic
inequality and promoting social equity, but their design and implementation
must take into account a range of economic and social factors, and they
must operate in a way that is sustainable over the long term.
Tax rates should be differentiated based on the type and size of the
inherited assets to ease the tax burden in the case of corporate inheritance.
For small and medium-sized businesses, tax incentives should be available to
reduce inheritance tax to help smooth family succession.
2. Family succession support
Family business succession support is an important policy that helps ensure
a of family businesses to the next , contributing to economic stability and 7 --
job creation. There are several important factors to consider for effective
implementation of family business succession support.
First, financial assistance through the elimination or reduction of inheritance
tax can help heirs maintain the business and
8) Barrios, S., Moscarola, F. C., Figari, F., Gandullia, L., & Riscado, S. (2020).
The fiscal and equity impact of social tax expenditures in the EU. Journal
of European Social Policy, 30, 355-369.
9) Casamatta, G. (2020). Optimal income taxation with tax avoidance. Journal of
Public Economic Theory.
10) Ganzen, B. v. (2023). Determinants of top personal income tax rates in 19
OECD countries, 1981-2018. Journal of Public Policy, 43, 401-426.8 --
It gives you the leeway to grow. This is particularly important for small and
medium-sized enterprises, where the burden of inheritance tax can threaten
their sustainability. Research suggests strengthening the aftercare
requirements for businesses that benefit economically from the family
inheritance system to ensure that they benefit the national economy.11)
Second, government support programs, including advisory services and
management training, help improve the next generation's ability to manage
businesses. Such support can contribute to making companies more
competitive and reducing intergenerational conflict. This is an effective
strategy for increasing the sustainability of family businesses, as evidenced
by Japan's successful family succession policy.
Third, family business succession support policies can lead to local economic
revitalization and job growth. This has a positive impact on the economy as
a whole and can increase the economic contribution of family businesses to
the community.
Finally, the detailed design of family succession support policies should
consider both fairness and efficiency. For example, it has been proposed to
complement the payment system by providing legal guarantees that heirs
can exercise their voting rights on the paid-up family shares at shareholder
meetings. This approach can enhance the wealth redistribution function
while maintaining the equity of family succession support.
Supporting family business succession is an important policy to increase the
sustainability and economic stability of family businesses, and its
implementation must be both fair and efficient. Ongoing monitoring and
feedback can help maximize its effectiveness.
Policy support is needed to facilitate business succession. Deferring the tax 9 --
liability for a period of time or providing partial tax exemptions upon family
succession can help businesses being unable to pay inheritance tax. This can
help create jobs and promote economic sustainability.
2. estate tax avoidance and tax evasion issues
11) Park, Seung-Sik, & Park, Sang-Yeon. (2020). How to improve the inheritance tax family
succession taxation Accounting and Information Research, 38(2), 27-49.10 --
Inheritance tax avoidance and evasion is a significant problem that
undermines the fairness of the tax system and negatively impacts national
finances. It is driven by a number of factors and requires a variety of
approaches to address.
First, high-income earners and large corporations can reduce their
inheritance tax burden through complex tax avoidance strategies. This can
increase social inequality and place a disproportionately large tax burden on
the middle and lower income groups. Research by Alstadsæter et al12)
emphasizes that tax evasion and avoidance are major factors that undermine
the fairness of the tax system. In addition, research by Linseis13) analyzes the
impact of inheritance tax on the size of the shadow economy and the
amount of tax evasion, suggesting that higher inheritance taxes can lead to
a larger shadow economy.
Second, legal accounting manipulations or false declarations related to asset
transfers can lead to a decrease in tax revenues for the IRS. Such illegal
behavior undermines the credibility of the inheritance tax system and can
adversely affect national finances. A study by Linseis14) specifically analyzes
the problem of inheritance tax evasion in Germany and suggests the need
for policy intervention to address the problem.
Third, policy efforts to prevent inheritance tax avoidance increasing
transparency in asset valuation and enforcing strong penalties for tax
evasion. Research by Kemme et al15) shows that sharing tax information
through international cooperation is effective in reducing tax evasion.
International cooperation should also be considered to strictly enforce the
declaration and valuation of assets.
Tax reform may be needed to increase the fairness and efficiency of the
inheritance tax system. This would strengthen social equity and contribute to 11 --
restoring trust in the tax system. Research by Gioacchino and Fichera16) has
revealed the relationship between tax morality and tax evasion through
social network analysiswhich may support the need for tax reform.
Inheritance tax avoidance and evasion threaten the credibility and
sustainability of the tax system.
12) Alstadsæter, A., Johannesen, N., Herry, S. L. G., & Zucman, G. (2022).
Tax evasion and tax avoidance. Journal of Public Economics.
13) Linseis, P. (2022). Influence of Inheritance Tax on the Size of Shadow
Economy and the Volume of Tax Evasion. Journal of Legal Studies, 30, 27-43.
14) Linseis, P. (2022). Inheritance Tax Evasion in Germany. Journal of Legal
Studies, 29, 91-113.
15) Kemme, D. M., Parikh, B., & Steigner, T. (2020). Tax Morale and
International Tax Evasion. Journal of World Business, 55, 101052.
16) Gioacchino, D. D., & Fichera, D. (2020). Tax evasion and tax morale: A
social network analysis. European Journal of Political Economy, 65, 101922.12 --
is essential. We need to move toward a fairer tax system that promotes
social equity.
Problem
Inheritance tax avoidance and evasion is still a big problem, and some heirs
are using methods to reduce their inheritance by moving assets offshore or
selling some assets. This exacerbates the problem that inheritance tax falls
disproportionately on high net worth heirs.
Complementarities
1. Enhanced tax audits
Enhanced tax audits are a deterrent device that plays an important role in
addressing tax avoidance and evasion and securing tax revenue. They enable
tax authorities to improve the accuracy of tax filings by taxpayers and
promote tax morality.
First, enhanced tax audits can be used to effectively target tax avoidance and
evasion behavior by high-income individuals and large corporations.
Research suggests that risk-based auditing using data analytics techniques
can significantly improve the effectiveness of tax audits.17) This allows tax
authorities to detect anomalies earlier and conduct audit activities more
systematically.
Second, to increase the transparency of tax audits, public disclosure of
information about the audit process and results is necessary. This is
important for taxpayers to trust the fairness of tax audits and to promote
voluntary tax filing. Research shows that transparent disclosure of audit
results has a positive impact on increasing tax morality among taxpayers.18)13 --
Third, increasing the professionalism of tax authorities is essential to
strengthening tax audits. Education and training of audit personnel can
improve their understanding of the latest tax laws and accounting standards
and improve quality of tax audits. This strengthens the credibility of tax
audits and contributes to building a trusting relationship with taxpayers.19)
17) Mittone, L., Ploner, M., & Verrina, E. (2021). When the state does not play
dice: aggressive audit strategies foster tax compliance. Social Choice and
Welfare, 57, 591-615.
18) Kasper, M., & Rablen, M. D. (2023). Tax compliance after an audit: Higher
or lower?. Journal of Economic Behavior and Organization.14 --
Strengthening tax audits through international cooperation is effective in
preventing tax avoidance by multinational corporations. The sharing of tax
information and cooperation between countries contributes to greater
fairness in the global tax environment and can help prevent tax evasion,
particularly by making the complex tax structures of multinational
corporations more transparent.20)
Enhanced tax audits increase the transparency and credibility of tax
administration and play an important role in securing tax revenues and
combating tax evasion. This will lead to a fairer tax system.
Inheritance tax audits need to be strengthened to thoroughly examine where
assets have been moved and how they have been transferred, and
international tax cooperation should be used to prevent transfer of assets
offshore.
2. Strengthening anti-inheritance tax avoidance laws
Strengthening anti-inheritance tax avoidance laws plays an important role in
increasing the fairness of the tax system and ensuring the stability of the
country's finances. Effective measures may consider the following approaches
First, legal regulations should be strengthened to prevent inheritance tax
avoidance, with stricter reporting obligations for asset movements and
transfers and increased penalties for violations. Studies have shown that
stricter regulations can be effective in curbing tax avoidance,21) and this can
be realized through clarification of asset valuation criteria and increased
surveillance of unusual transactions.
Second, rebalancing the inheritance tax exemption threshold and tax rate 15 --
structure can make it more difficult for high-income individuals to attempt
to avoid taxes, and reduce the tax burden on middle- and low-income
individuals. Strengthening the progressivity of tax rates is an important
strategy to prevent wealth concentration, and examples from other countries
show that this approach can be effective.22)
19) Chyz, J. A., Gal-Or, R., & Naiker, V. (2022). Separating Auditor Provided Tax
Planning and Tax Compliance Services: Audit Quality Implications. Auditing-A
Journal of Practice & Theory.
20) emme, D. M., Parikh, B., & Steigner, T. (2020). Tax Morale and
International Tax Evasion. Journal of World Business, 55, 101052.
21) Alstadsæter, A., Johannesen, N., Herry, S. L. G., & Zucman, G. (2022).
Tax evasion and tax avoidance. Journal of Public Economics.
22) Klitgaard, M., & Paster, T. (2020). How Governments Respond to Business
Demands for Tax Cuts: A Study of Corporate and Inheritance Tax Reforms in
Austria and Sweden. Scandinavian Political Studies.16 --
Third, there is a need for technological support for transparent valuation and
reporting of assets. Asset management systems that utilize digital
technology can help monitor changes in assets in real time and provide tax
authorities with quick access to the information they need. Such technical
support can contribute to reducing tax avoidance.23)
Fourth, information sharing through international cooperation is important to
prevent tax avoidance, especially when multinational corporations or high
net worth individuals hold assets abroad. International tax information
sharing networks can contribute to greater fairness in the global tax
environment.24)
A system should be put in place to evaluate and continuously improve the
effectiveness of anti-inheritance tax avoidance laws. This will improve the
enforcement of the policy and build trust with taxpayers. Research
emphasizes that increased tax audits can have a positive impact on tax
compliance.25)
Strengthening the anti-avoidance laws for inheritance tax is a critical task
that will increase the credibility of the tax system and have a positive impact
on the country's finances. It will help to create a fairer tax system.
Penalties for illegal methods of avoiding inheritance tax should be increased
and systems should be put in place to enable tax authorities to detect them.
For example, legal should be put in place to prevent illegal devaluation in
the valuation of assets.
3. Imbalance of tax deductions and exemption limits17 --
The imbalance of tax deductions and exemption limits is a significant
problem that exacerbates economic inequality between income groups and
undermines the fairness of the tax system. In particular, this imbalance stems
from the fact that higher-income individuals are able to claim more tax
deductions, which makes their tax burden seem lower than that of lowerincome
individuals.
23) degl'Innocenti, D. G., Levaggi, R., & Menoncin, F. (2022). Tax avoidance
and evasion in a dynamic setting. Journal of Economic Behavior &
Organization.
24) Kemme, D. M., Parikh, B., & Steigner, T. (2020). Tax Morale and
International Tax Evasion. Journal of World Business, 55, 101052.
25) Mittone, L., Ploner, M., & Verrina, E. (2021). When the state does not play
dice: aggressive audit strategies foster tax compliance. Social Choice and
Welfare, 57, 591-615.18 --
First, if tax credits and exemption limits are designed to favor high-income
earners, this can exacerbate income inequality and lead to social discontent.
Research shows that to better understand the impact of the tax system on
income inequality, equity aspects of tax policy need to be considered in its
design and implementation.26)
Second, we need to rebalance the types and scope of tax credits to increase
fairness. For example, expanding deductions for basic necessities, such as
education, healthcare, and housing, could reduce the tax burden lowincome
families. This approach can contribute to greater equity in the tax
system.27)
Third, adjusting the exemption threshold requires a differentiated approach
based on income levels. Providing higher exemption limits for lower-income
groups can reduce their tax burden and strengthen the social safety net.
Research has shown that this approach can contribute to a higher standard
of living for low-income groups.28)
Fourth, there is a need for greater transparency of tax credits and exemption
limits, and policy education to explain them. Helping taxpayers understand
and utilize their rights can contribute to increasing confidence in the tax
system. This also an important role in reducing tax avoidance.29)
Ongoing monitoring and policy improvements are needed to address
imbalances in tax deductions and exemption limits. This can help maintain
the fairness of the tax system and contribute to reducing economic
inequality. Continuous evaluation and improvement of policies can be
particularly effective in reducing the problem of tax avoidance and evasion.30)
The imbalance in tax deductions and exemption limits is a barrier to social 19 --
equity, and policy efforts to address it are essential. Moving toward greater
economic stability through a fairer tax system
26) Apps, P., & Rees, R. (2021). Inequality measurement and tax/transfer policy.
International Tax and Public Finance, 29, 953-984.
27) Ohno, T., Sakamaki, J., Kojima, D., & Imahori, T. (2021). Effects of
Deductions on the Tax Burden Reduction and the Redistribution of the
Income and Resident Taxes. Japan and the World Economy.
28) Apps, P., & Rees, R. (2021). Inequality measurement and tax/transfer policy.
International Tax and Public Finance, 29, 953-984.
29) Kemme, D. M., Parikh, B., & Steigner, T. (2020). Tax Morale and
International Tax Evasion. Journal of World Business, 55, 101052.
30) Sangkwon Cha, Hyungjang Cho, & Sunpil Hwang. (2021). The impact of tax
avoidance and tax risk on valuation errors. Journal of Taxation, 38(4), 105-137.20 --
You need to go.
Problem
Inheritance tax deductions and exemption limits disproportionately favor
wealthy heirs, and some asset classes can be overtaxed. This creates a
problem that prevents the system from functioning as a fair system that
helps middle- and lower-income people avoid paying the burden of
inheritance tax.
Complementarities
1. Increasing the exemption limit
Increasing the tax-free threshold can play an important role in reducing the
tax burden on low- and middle-income people and in reducing economic
inequality. This can contribute to economic stimulus by increasing spending
power, and several studies have confirmed the validity of this approach.
First, increasing the tax-free threshold can increase economic equity by
increasing disposable income for low-income individuals. This can have a
positive impact on local economies by increasing access to basic necessities
and stimulating consumption. A study by Ohno et al. highlighted that
increasing deduction and tax exemption limits can reduce tax burden and
have income redistribution effects.31)
Second, an increase in the tax-free threshold could contribute to stimulating
domestic demand and improving consumer confidence. Especially in times of
economic downturn, stimulating consumption can be an important factor in
supporting economic recovery. Stimulating consumption can also lead to
increased sales for businesses, which can have a positive impact on job 21 --
creation.32)
Third, in order to increase the fairness of the tax system, consideration
should be given to raising the exemption limit and realigning tax deductions.
Park's study points out that the deductibility of inheritance and gift taxes can
lead to imbalances and calls for a reform of the tax system.33) From this
perspective, it is necessary to increase the exemption limit and at the same
time, make institutional complements to prevent tax avoidance by highincome
earners.
31) Ohno, T., Sakamaki, J., Kojima, D., & Imahori, T. (2021). Effects of
Deductions on the Tax Burden Reduction and the Redistribution of the
Income and Resident Taxes. Japan and the World Economy.
32) Apps, P., & Rees, R. (2021). Inequality measurement and tax/transfer policy.
International Tax and Public Finance, 29, 953-984.
33) Park, Jun (2021). A study on how to improve inheritance and gift taxes:
focusing on the deduction clause and real estate taxation system. Space and
Society, 31(2), 140-170.22 --
Fourth, the impact of increasing the tax exemption limit on public finances
should also be carefully considered. This is to minimize the decline in tax
revenues and ensure the sustainability of the policy, as other tax adjustments
or efficient fiscal operations will be needed to compensate.
Before implementing an increase in the exemption limit, it is essential to
build a broad social consensus and ensure the transparency and
effectiveness of the policy. This will ensure taxpayer confidence and build a
fairer tax system.35)
Increasing the exemption threshold is an effective policy to reduce economic
inequality and stimulate consumption, but it needs to be approached
carefully and monitored on an ongoing basis. This systematic approach will
lead to a fairer and more sustainable tax system.
The inheritance tax exemption threshold should be increased for middleand
lower-income families to provide real relief. This would improve the
fairness of the inheritance tax, and could alleviate the tax burden where it is
unnecessary.
2. Expanded family unit deduction
Expanding the family unit credit is seen as an important policy to ease the
financial burden on households and increase the economic stability of
families. This will support diverse family forms and strengthen economic
equity.
First, expanding the family unit credit promotes family economic stability by
helping families pay for child care and education. Studies have shown that
tax support for child care increases family economic stability and can have a 23 --
positive impact on fertility rates.36) This increases families' disposable income,
which can spur spending and contribute to local economic revitalization.37)
34) Linseis, P. (2022). Influence of Inheritance Tax on the Size of Shadow
Economy and the Volume of Tax Evasion. Journal of Legal Studies, 30, 27-43.
35) Linseis, P. (2022). Inheritance Tax Evasion in Germany. Journal of Legal
Studies, 29, 91-113.
36) Lundstrom, S. M. (2017). The Impact of Family Income on Child
Achievement: Evidence from the Earned Income Tax Credit: Comment. The
American Economic Review, 107, 623-628.
37) Carbonnier, C., Malgouyres, C., Py, L., & Urvoy, C. (2020). Who benefits
from tax incentives? The heterogeneous wage incidence of a tax credit.
Journal of Public24 --
Second, expanding deductions to take into account different family forms
contributes to greater social inclusion. This can increase the fairness of the
tax system, including support for different family structures, such as divorced
and single-parent families.38) In particular, tax support for families with
complex family structures plays an important role in improving the living
conditions and well-being of children.39)
Third, it is important to simplify and make the tax system more transparent.
Expanding the family credit requires reducing the complexity of the tax code
and designing policies that are easy for taxpayers to understand.) This can
help confidence and voluntary tax filing.
The impact of expanding the family unit credit on public finances should be
considered. There may be a reduction in tax revenue, so other tax
adjustments or efficient fiscal operations are needed to compensate.
Research suggests that measures are needed to minimize the impact of
expanding the credit on tax revenues while ensuring the sustainability of the
policy.41)
Expanding the family unit deduction is an important policy to improve
economic equity and support diverse family structures. With a thoughtful
approach and ongoing monitoring, we can build a more inclusive and
sustainable tax system.
By increasing the exemption limit for family unit transfers, you can reduce
the tax burden when assets are dispersed. This will make it more efficient for
families to transfer assets through inheritance.25 --
Economics.
38) Brehm, M. E., & Malkova, O. (2023). The Child Tax Credit over Time by
Family Type: Benefit Eligibility and Poverty. National Tax Journal, 76, 707-741.
39) Michelmore, K., & Pilkauskas, N. V. (2022). The Earned Income Tax Credit,
Family Complexity, and Children's Living Arrangements. RSF: The Russell Sage
Foundation Journal of the Social Sciences, 8, 143-165.
40) Sági, J., Tatay, T., Lentner, C., & Neumanné, I. V. (2017). Certain Effects of
Family and Home Setup Tax Benefits and Subsidies. Public Finance Quarterly,
62, 171-187.
41) Ohno, T., Sakamaki, J., Kojima, D., & Imahori, T. (2021). Effects of
Deductions on the Tax Burden Reduction and the Redistribution of the
Income and Resident Taxes. Japan and the World Economy.26 --
4. Inheritance taxes and tax gripes⑨.
Inheritance tax and tax inequality is an important socioeconomic issue in
modern society, as it can lead to wealth concentration and increased
inequality. Inheritance taxes tend to exacerbate wealth inequality by primarily
favoring those with high incomes. This is especially true when inheritance
taxes are not progressive or have excessively high exemption limits.
First, the way inheritance taxes are structured to favor high-income
individuals encourages wealth transfer. Research suggests that the
inheritance tax may be one of the main factors contributing to wealth
inequality, making it difficult to raise revenue from higher-income
individuals.42) This problem is compounded by the complexity of valuing and
reporting assets in the inheritance process.
Second, the potential for tax avoidance and evasion further highlights the
unfairness of the inheritance tax. High-income earners tend to avoid
inheritance tax through complex tax strategies, which leads to lower tax
revenues and makes it harder to invest in public services.43) To address this,
inheritance tax needs to be more transparent, with stronger sanctions
against tax avoidance.
Third, tax law reform is needed to address inequities in the inheritance tax.
By strengthening the progressivity of the inheritance tax and readjusting the
exemption limit, the tax burden of high-income earners can be increased.
This could contribute not only to raising tax revenue but also to
strengthening the social safety net.44)
Providing education and information related to inheritance tax is also
important. Taxpayers need be helped to understand their rights and
obligations and to recognize a fair tax system, which can contribute to 27 --
increasing tax compliance and reducing tax avoidance. Increased tax
education is particularly important to raise awareness of inheritance and
taxes among younger generations.45)
Inheritance tax and tax inequality are important barriers to social equity, and
policy efforts are needed to address them. A fair tax system can help reduce
economic inequality and ensure sustainability.
42) Morelli, S., Nolan, B., Palomino, J. C., & Kerm, P. V. (2021). Inheritance,
gifts and the accumulation of wealth for low-income households. Journal of
European Social Policy, 31, 533-548.
43) Ortiz, M., Carney, M., Duran, P., Braun, M., & Riutort, J. (2020).
Inheritance tax, shareholder protection, and the market value of family
firms: A cross-country analysis. Global Strategy Journal.
44) Chamberlain, E. J. (2020). Reform of Inheritance Tax. British Tax Review, ,
184-199.
45) Peterfreund, Y., & Strawczynski, M. (2024). An Economic Justification for
Rignano's Inheritance Tax Proposal. Atlantic Economic Journal.28 --
We will be able to build an empowered society.
Problem
Because inheritance tax is only levied on large estates, there is scope for
some high-net-worth individuals to find ways to evade the tax or avoid
paying it. This can lead to increased social inequality.
Complementarities
1. Align social complaints⑨ with mitigation policies
Policies to reduce social inequality require an integrated approach across
multiple sectors. This can be maximized by linking multiple policies. Here, we
complement existing answers with more specific policy linkages and research
findings.
First, income redistribution policies and the expansion of educational
opportunities play an important role in reducing inequality. Research shows
that reducing disparities in educational opportunities can reduce income
inequality in the long run,46) which in turn helps to ensure that children from
low-income families have equal access to education.
Second, strengthening social safety nets and linking employment creation
programs can contribute to reducing economic insecurity and increasing
social mobility. This is effective in reducing economic inequality by providing
livelihood security and job opportunities for low-income people, even during
times of economic crisis.47)29 --
Third, combining policies to ensure housing stability with tax support for
low-income households can help ease the burden of housing costs. This can
be accomplished by expanding tax credits in conjunction with housing
assistance, which can contribute to reducing financial pressures on
households.48)
46) Morelli, S., Nolan, B., Palomino, J. C., & Kerm, P. V. (2021). Inheritance,
gifts and the accumulation of wealth for low-income households. Journal of
European Social Policy, 31, 533-548.
47) Scarlato, M., d'Agostino, G., & Pieroni, L. (2020). Social transfers and
income inequality in OECD countries. Structural Change and Economic
Dynamics.
48) Popova, D. (2023). Impact of Equity in Social Protection Spending on
Income Poverty and Inequality. Social Indicators Research, 169, 697-721.30 --
Fourth, linking policies that increase access to health insurance and health
care with income support programs is important for improving the health of
low-income populations. A healthier population can contribute to higher
economic productivity and reduced social inequality.49)
These policies can be implemented more effectively through collaboration
with local communities. Local governments and nonprofits can work together
to develop and implement tailored programs to make policies more effective.
This is a way to increase policy implementation and mitigate inequality
through a locally tailored approach.50)
Policies to reduce social inequality should be linked to each other and
require an integrated approach. This will help build a more inclusive and
sustainable society.
Along with inheritance tax, policies need to be aligned to reduce social
inequality by strengthening income and property taxes on the wealthy. This
is a way to emphasize the fairness and social responsibility of the inheritance
tax system.
2. Repurpose estate taxes
Redefining the purpose of the inheritance tax is an important challenge to
address economic inequality in modern society and to make the tax system
fairer. To complement the existing responses, we propose a more specific
and practical redefinition of the purpose of the inheritance tax.
First, the purpose of the estate tax should be to limit wealth transfer and
promote economic equity. Wealth transfer has been pointed to as one of the
main causes of growing social inequality,51) and the inheritance tax is an 31 --
important tool to prevent this concentration of wealth. Research shows that
wealth inequality can be reduced by making inheritance taxes more
progressive and adjusting exemption limits.52)
49) Health, T. L. P. (2020). Income, health, and social welfare policies. The
Lancet. Public health, 5(3), e127.
50) Ito, T., Iwata, K., Lee, C., McKenzie, C., & Urata, S. (2023). Inequality,
Social Justice and Welfare in Asia: Editors' Overview. Asian Economic
Policy Review.
51) Morelli, S., Nolan, B., Palomino, J. C., & Kerm, P. V. (2021). Inheritance,
gifts and the accumulation of wealth for low-income households. Journal of
European Social Policy, 31, 533-548.
52) Chamberlain, E. J. (2020). Reform of Inheritance Tax. British Tax Review, ,
184-199.32 --
Second, inheritance tax revenues should be utilized as public finance to
strengthen the social safety net. This can improve the standard of living of
society as a whole by reinvesting in various areas such as education, health,
and social services. In particular, research has shown that social investment
policies are effective in reducing income inequality.53)
Third, the process of reforming the estate tax should consider the equity of
the tax code. It is necessary to fairly adjust the tax structure of the
inheritance tax to reduce the difference in tax burden between high and low
income earners. Reforming the inheritance tax can help prevent tax evasion
by high-income individuals and have a positive impact on tax revenue.54)
Fourth, education and outreach to improve the public's tax awareness is
important. By educating taxpayers on the purpose and need for inheritance
tax, it is possible to empathize with them and encourage voluntary
compliance. This can reduce tax avoidance and have a positive impact on tax
revenue.55)
Redefining the purpose of the inheritance tax is essential to tackling
economic inequality and promoting social fairness. This should lead to a
more sustainable tax system and a stronger social safety net. Inheritance tax
needs to evolve beyond being just a means of raising revenue and become
a social contributor.
We need a tax reform that aims to promote public welfare and tackle social
inequalities, rather than just taxing high net worth individuals. This will help
clarify the purpose of the inheritance tax and build public consensus on the
tax.33 --
5. Estate tax enforcement efficiency issues
The enforcement efficiency of the inheritance tax is an important factor in
revenue collection and fair taxation, and several studies and policy proposals
are available to address it. Below, we discuss the enforcement efficiency of
the inheritance tax
53) Sakamoto, T. (2021). Do social investment policies reduce income
inequality An analysis of industrial countries. Journal of European Social
Policy, 31, 440-456.
54) Niimi, Y. (2018). The Effect of the Recent Inheritance Tax Reform on
Bequest Behavior: Evidence from Japan. Fiscal Studies.
55) Klitgaard, M., & Paster, T. (2020). How Governments Respond to Business
Demands for Tax Cuts: A Study of Corporate and Inheritance Tax Reforms in
Austria and Sweden. Scandinavian Political Studies.34 --
Provide specific actions to improve performance.
First, it's important to increase the accuracy and consistency of asset
valuations. The key to enforcing inheritance tax is assessing the market value
of assets, which is challenging due to the diversity and complexity of assets.
study by Lim Seung-soon and Kim Yong-taek points out the problems with
real estate valuation methods and notes that the principle of fair taxation
requires ensuring fairness and adequacy of valuation.56) Therefore, it is
necessary to establish clear valuation criteria and procedures and update
them continuously.
Second, taxpayer education and information provision should be
strengthened. Lack of information about the estate tax filing and payment
process is a major factor that hinders enforcement efficiency. Previous
research points to the complexity of the tax regime for trusts and
emphasizes the importance of providing adequate education and
information to taxpayers.57) The government should expand education
programs for taxpayers and provide easily accessible information through
online platforms.
Third, there is a need for systematic auditing and regulation to combat tax
avoidance and evasion. According to a study by Linseis, inheritance tax
avoidance increases the size of the shadow economy and reduces tax
revenues.58) To combat this, tax authorities should run special investigation
programs targeting high-income individuals along with regular audits.
Fourth, tax authorities should be better staffed and resourced to improve
enforcement efficiency. If tax authorities are understaffed or lack expertise,
effective tax enforcement can be difficult. 's research also points to this
problem, citing the need for increased staffing and specialized training.59)
Therefore, tax authorities should increase their professionalism by hiring 35 --
more staff and expanding training programs.
There is a need for greater transparency through data management and
information sharing. A study by Ortiz et al. provides a comparative analysis
of inheritance tax regimes in various countries and emphasizes the
importance of information sharing.60) Between tax authorities
56) Lim, Seung-Soon, & Kim, Yong-Taek. (2021). "Problems with the Real Estate
Valuation Method in the Inheritance and Gift Tax Act - Focusing on the Principle of
Equitable Taxation. Tax Law Review, 27(2), 237-283.
57) Lee, J. O. (2020). A study on the current status of the trust-related inheritance and gift
tax system and ways to improve it. Tax and Accounting Research,
9(3), 5-50.
58) Linseis, P. (2022). Influence of Inheritance Tax on the Size of Shadow
Economy and the Volume of Tax Evasion. Journal of Legal Studies, 30, 27-43.
59) Yoon, Deok-Byung. (2022). A study of inheritance taxation under the death tax.
Innovative Enterprise Research, 7(2), 81-95.
60) Ortiz, M., Carney, M., Duran, P., Braun, M., & Riutort, J. (2020).
Inheritance tax, shareholder protection, and the market value of family
firms: A cross-country analysis. Global Strategy Journal.36 --
Information sharing can increase transparency of assets and prevent
inaccurate taxation.
The issue of inheritance tax enforcement efficiency can be addressed
through a multi-pronged approach. Policy improvements should be
accompanied by efforts to improve taxpayer understanding, which will lead
to a fair and efficient tax system.
Problem
Inheritance tax is complicated by the complexity of valuing assets and
calculating inheritance tax, which provides room for tax avoidance and
creates inefficiencies for tax authorities. In particular, there can be difficulties
in accurately valuing assets.
Complementarities
1. Improvements to the estate tax filing system
Improving the inheritance tax filing system is an important task to increase
the efficiency of tax administration, provide convenience to taxpayers, and
strengthen revenue collection. We propose specific improvements to do so.
First, the introduction and expansion of e-filing systems is essential. The efiling
system should make it easier for taxpayers to file their inheritance tax
returns especially by enhancing accessibility through mobile devices so that
they can file anytime, anywhere. This will reduce the time and cost of the
filing process and contribute to greater transparency.
Second, we need to simplify and clarify the filing process. Reduce complex
documentation requirements and provide consistent forms so that taxpayers 37 --
can file without confusion. By providing clear guidelines and checklists,
confusion in the filing process should be minimized.61)
Third, taxpayer education and outreach should be strengthened. Educational
programs on tax laws, procedures and required documents related to
inheritance tax filings be conducted, and expert consultation services should
be provided to make it easier for taxpayers to obtain the information they
need. This will contribute to reducing filing errors and encouraging voluntary
tax compliance.62)
61) Lee, J. O. (2020). A study on the current status of trust-related inheritance and gift tax
systems and ways to improve them. Tax and Accounting Research,
9(3), 5-50.38 --
Fourth, flexible filing deadlines are a way to ease the burden on taxpayers.
Because estate tax filings are often fraught with emotion and complexity,
consideration should be given to extending the deadline to provide more
time.
Fifth, feedback on the inheritance tax filing system should be collected
regularly and improvements should be implemented. A system should be
put in place to gather feedback from taxpayers and tax professionals to
identify problems with the system and make continuous improvements. This
will increase the reliability of the filing system and increase taxpayer
satisfaction.
Improving the inheritance tax filing system is an important challenge that
can simultaneously improve taxpayer convenience and raise revenue. Such
improvements should reflect the various measures proposed in the study,
creating a more comprehensive and substantive reporting system.
You implement a digitalized filing and payment system to automate tax
calculations and increase accuracy. This will minimize inconvenience for
taxpayers and efficiently enhance audit capabilities for tax authorities.
2. Enhance your asset valuation system
Strengthening the estate valuation system requires a comprehensive
consideration of a number of measures, which are essential to increasing the
fairness of the estate tax and improving the efficiency of the valuation
process. Below are specific suggestions for strengthening the asset valuation
system and an analysis based on research findings.
First, valuation criteria need to be standardized and refined. It is important 39 --
to have consistent evaluation criteria for different asset types. A study by Su
et al. proposes the automation of asset valuation by integrating building
information modeling (BIM) and machine learning, which shows that
accuracy can be increased through standardized evaluation criteria.63)
Second, we need to adopt an evaluation system that leverages technology.
Utilize artificial intelligence (AI) and big data analytics
62) Jung, Hye-Yoon, & Yoon, Byung-Sup. (2022). How to improve the inheritance tax to
ensure smooth family succession for SMEs. Regional Industrial Research,
45(1), 57-92.
63) Su, T., Li, H., & An, Y. (2021). A BIM and machine learning integration
framework for automated property valuation. Journal of building engineering,
44, 102636.40 --
can maximize the accuracy and efficiency of property valuations. Research by
Baur et al. shows how machine learning models can be used to automate
real estate appraisals and improve the accuracy of appraisals through
property descriptions.64) This technological approach can quickly reflect
changes in market trends.
Third, a system of regular asset value updates needs to be introduced. This
means conducting valuations based on the latest information, reflecting the
volatility of real estate and financial assets. The study by Tomić et al.
provides information for the establishment of an efficient asset valuation
system through the Croatian case and shows that regular updates can
contribute to increasing the reliability of valuations.65)
Fourth, collaboration and training with experts should be strengthened. To
increase the credibility of asset valuation, specialized personnel should be
recruited and collaborated with experts in related fields. Zyga's research
analyzes the impact of the purpose and objectivity of asset valuation on
valuation methods and databases, which suggests that the role of experts is
important.66)
Fifth, there is a need for greater transparency of assessment results. The
assessment process and results should be clearly disclosed and easily
understood by taxpayers. This will promote trust in assessments and help
streamline the appeals process.
Strengthening asset valuation systems plays an important role in ensuring
the fair imposition of inheritance taxes and revenue collection. It is essential
to increase the accuracy and transparency of valuations through
technological innovation and expert collaboration, which will build taxpayer
confidence. This approach can be realized through policy efforts and
collaboration with various stakeholders.41 --
System improvements are needed to increase transparency and consistency
in asset valuation. Clarifying the criteria for valuing assets by experts and
standardizing the valuation process can help ensure fairness in the
imposition of inheritance tax.
64) Baur, K., Rosenfelder, M., & Lutz, B. (2022). Automated real estate
valuation with machine learning models using property descriptions. Expert
Systems with Applications, 213, 119147.
65) Tomić, H., Ivic, S., Roić, M., & Šiško, J. (2021). Developing an efficient
property valuation system using the LADM valuation information model: A
Croatian case study. Land Use Policy, 104, 105368.
66) Zyga, J. (2019). Object and objective of property appraisal and their effects
on valuation methods and databases. Geodetski Vestnik.42 --
Conclusion
South Korea's inheritance tax system aims to reduce social inequality, but it
faces problems such as excessive tax burden, tax avoidance, and
disproportionate deductions. To address these issues, various improvements ,
including differentiating tax rates, family inheritance, strengthening tax audits,
and deduction tax system should be made fairer and more effective by
redefining the purpose of the inheritance tax system and improving the
efficiency of the tax enforcement system.
This study provides an in-depth discussion of the problems and ways to
improve the Korean inheritance tax system, and we hope it can be used as a
basis for future policy decisions.43 --
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