Seoul: A recent report by the Korea Chamber of Commerce and Industry (KCCI) has highlighted the growing outflow of wealth from Korea due to the nation's punitive inheritance taxes.

According to Yonhap News Agency, the report indicates that Korea's effective inheritance tax rate is the highest among OECD member countries, leading affluent individuals to relocate or change their citizenship to avoid these taxes.

The report points out that the "wealth flight" is not just anecdotal but a real and accelerating trend. In 2024, approximately 1,200 people reportedly left Korea due to inheritance tax pressures, a number that doubled to around 2,400 by 2025. Under the current system, individuals inheriting assets valued at 3 billion won ($2.2 million) or more face a base tax rate of 50 percent, with the possibility of reaching 60 percent for controlling stakes in companies due to surcharge premiums.

The KCCI has warned that Korea's high effective tax rate is a primary driver of this wealth outflow, placing the country among the highest for departures related to inheritance taxes, following the United Kingdom, China, and India. The report further notes that high taxes can impede economic growth, negatively impacting investment and employment.

To address these challenges, the KCCI proposes a three-point plan to increase flexibility in inheritance tax payments. Recommendations include extending the installment payment period for inherited assets from 10 to 20 years, introducing a minimum five-year grace period, allowing taxes to be paid using listed stocks, and extending the stock valuation period to two to three years.

The KCCI report highlights the unsustainability of the current tax system, noting that it has become common for business leaders to sell stakes or entire companies to secure liquidity for tax payments. Such sales, especially to foreign entities, can increase the risk of technology leaks and undermine national competitiveness.

Ordinary citizens are also affected by the current system, often forced to borrow to meet tax obligations, leading to increased debt. Calls for reform have grown, yet government action remains limited. President Lee Jae Myung has acknowledged the system's issues but has shown no intention to revise it, stating in December that changes to the tax framework are not under consideration.

Inheritance taxes have become a crucial source of government revenue, accounting for 2.14 percent of total tax income in 2024, up from 0.29 percent in 2002. The number of taxpayers subject to these taxes has also surged, affecting more middle-class families and increasing economic burdens.

With rising demands for welfare and social programs, maintaining high tax rates might be tempting for the government. However, the current system's unsustainability poses significant risks to the economy, a challenge the Lee administration can no longer overlook.