Abolition of Financial Investment Income Tax… Easing of Inheritance Tax Seems Unlikely

Opposition Party to Process Tax Law Amendment on the 10th

Likely to Push Through 'Reduced Budget Bill'

The tax law amendment for next year, including the abolition of the financial investment income tax and the deferral of virtual asset taxation, is expected to be presented and processed at the National Assembly plenary session on the 10th. The restructuring of the inheritance tax, which has a top rate of 60%, and the separate taxation of dividend income are likely to be scrapped.

Lee Eon-ju, head of the Democratic Party of Korea's Economic Situation Inspection Team, told reporters at the National Assembly on the 9th, "We will process the budget-related bills tomorrow (10th), along with the abolition of the financial investment income tax and the deferral of virtual asset taxation."

Previously, the Democratic Party of Korea announced that it would unilaterally process a 'reduced budget bill' that cuts 4.1 trillion won from the government proposal at the plenary session on the 10th. This is due to the delay in budget negotiations as the ruling and opposition parties clashed over the increase in local currency budgets and the reduction of special activity expenses for the presidential office and the prosecution, leading to the unilateral processing of the reduction plan by the Special Committee on Budget and Accounts on the 29th of last month.

With the Democratic Party of Korea setting this course, it is observed that the easing of the inheritance tax burden and the separate taxation of dividend income, which have disagreements between the ruling and opposition parties, are virtually off the table for next year's implementation. The political vacuum caused by the martial law situation and the ruling party's lack of negotiation power have affected the core policies of 'value-up' in the stock market and the public's inheritance tax burden.

However, it is reported that National Assembly Speaker Woo Won-shik agreed on the need for additional budget negotiations raised by the government, suggesting that the presentation of the budget and tax laws could be delayed. Woo, who met with Deputy Prime Minister and Minister of Economy and Finance Choi Sang-mok at the National Assembly on this day, reportedly expressed his intention to resolve the budget issue through the 'inter-party talks for the suspension of the president's duties' proposed the previous day.

Separate Taxation of Dividend Income Also Virtually Scrapped… Processing of Tax Law Amendment Excluding Controversial Bills

Negotiations between the ruling and opposition parties on next year's tax law have been stalled for ten days since the 30th of last month. This is because the Democratic Party of Korea unilaterally passed the reduced budget bill at the Special Committee on Budget and Accounts on the 29th, and the ruling party is refusing to discuss the tax law.

The Democratic Party of Korea plans to process the tax law, which is a budget-related bill, at the plenary session on the 10th to pass the budget bill. Controversial bills have been excluded from the processing list. As a result, tax reduction bills that could have been processed if negotiations between the ruling and opposition parties had proceeded normally have failed to pass the National Assembly threshold.

The government's inheritance tax amendment, which aimed to lower the top rate from 50% to 40% and significantly increase various deductions, is a representative example. The Democratic Party of Korea was negative about lowering the top rate but was open to negotiations on expanding inheritance tax deductions. Democratic Party of Korea lawmakers proposed a law amendment to increase the general inheritance tax deduction from 500 million won to 800 million won and the spouse deduction from 500 million won to 1 billion won. Although it differs from the government's proposal to increase the child deduction from 50 million won to 500 million won per child, the overarching premise of easing the inheritance tax burden is the same.

Therefore, during the discussion process of the Tax Subcommittee of the Planning and Finance Committee last month, there was a strong expectation that a compromise deduction plan between the government and the Democratic Party of Korea would emerge. However, with the Democratic Party of Korea unilaterally processing the tax law, it has become difficult to expect an easing of the inheritance tax burden.

The separate taxation of dividend income, which would reduce dividend income tax when investing in 'value-up companies' that have embarked on shareholder returns, has also not been realized. The Democratic Party of Korea has opposed such tax reforms, arguing that the benefits would be concentrated among asset holders.

Until the 29th of last month, the Democratic Party of Korea was also against deferring virtual asset taxation, but dramatically changed its stance within two days, leading to the deferral of taxation. The 'K-Chips Act', which raises the tax credit rate for facility investment and research and development investment by semiconductor companies by 5 percentage points, also passed the National Assembly last month with bipartisan agreement. The tax exemption for corporate childbirth support funds will be implemented as per the government proposal from next year.

Reporter Noh Kyung-mok autonomy@hankyung.com