| Deputy Prime Minister and Finance & Economy
Minister Kwon O-kyu has revealed that a reform in the tax system
including inheritance and donation tax cut for domestic small-
and medium-sized enterprises (SMEs) is under way.
As DPM Kwon has admitted himself, a number of SMEs in Korea which operate as
a family business have suffered high inheritance and donation
taxes and had difficulties in continuing business in the country.
As a result, many SMEs have given up their business or moved
their operational bases to other countries to avoid the excessive
tax burden.
In Korea, SMEs that are run by chief aged over sixty currently
account for more than 10 percent of the total and the first-generation
who started the enterprise and now near retirement is increasing
in number. However, most of them are hesitating about inheriting
their businesses to their spouses or children due to the inheritance
& donation tax burden.
Although failure of the SME management right succession due
to the tax burden has been a controversial issue in Korea,
the country’s inheritance & donation tax has been
on a continuous increase for the past years, on the contrary:
from 10 percent in 1994 to 45 percent in 1996 and 50 percent
in 2000 (for a SME whose standard assessment is over 3 billion
won).
The management right succession is another way of inaugurating
an enterprise as it facilitates the basis for the enterprise
to continue. Thus, if the government is contemplating various
policy measures of prompting inauguration of enterprises in
the country, easing regulations regarding the management right
succession should necessarily be included in the list.
Hearing SMEs’ appeals for a more facile management
right succession process including their lamentation that,
“Who on earth will be able to continue their business
if they are crushed between antipathetic labor unions and
banks that often turn down SME loan requests and ultimately
prohibited from inheriting the business to successors?,”
the inheritance tax cut should not be delayed any longer.
Other advanced countries including Italia, Portugal and Sweden
abolished the inheritance tax system, while Korea’s
neighbor, Japan has also entered into the process of legislating
the inheritance tax reduction and exemption.
It is time for Korean government to step up to actualize
the inheritance & donation tax cut. However, against a
possibility that unethical business minds who may distort
the good intention of the tax cut only to evade taxes through
paper companies, the government will have to come up with
supplementary measures.
Along with the “partnership tax system” which
was recently introduced by the Finance & Economy Ministry
in favor of enterprises in a partnership by giving them a
tax cut, reform of the inheritance and donation tax system
for SMEs should be highly appraised as it would contribute
to revitalizing our economy.
[Translated by Sun-young Park / KHS]
[? Maeil Business Newspaper & mk.co.kr, All rights reserved
http://news.mk.co.kr/newsRead.php?sc=30200005&cm=&year=2007&no=329516&selFlag=&relatedcode=&wonNo=&sID=302
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