Tougher stock tax plan risks doing more harm than good
: The Democratic Party's revised inheritance tax bill aims to deter price suppression but could deepen burdens on businesses and heirs.
The governing Democratic Party (DP) plans to pass a tougher version of its proposed legislation to prevent deliberate stock price suppression next month. At a general meeting of lawmakers on Monday, the party reaffirmed its intention to pass the revised Inheritance and Gift Tax Act during the regular National Assembly session.
The move appears largely intended to appease retail investors disappointed by falling stock prices, which have threatened even President Lee Jae Myung's campaign pledge of a KOSPI index reaching 5,000. The opposition has criticized the legislation as an attempt to artificially boost share prices.
The proposed law is based on the assumption that controlling shareholders deliberately keep stock prices low to reduce inheritance and gift taxes. It reflects the belief that ordinary investors suffer because major shareholders manipulate valuations for personal tax benefits.
Rep. Lee So-young and other lawmakers previously proposed setting the minimum taxable valuation of listed shares at 80 percent of their net asset value per share whenever market prices fall below that threshold.
In August, the government proposed another approach. Companies would be presumed to have suppressed their share prices if their price-to-book ratios (PBR) ranked in the bottom 25 percent of their industries on the KOSPI or the bottom 10 percent on the KOSDAQ for at least 12 of the previous 13 half-year periods, equivalent to six years.
Their shares would then be valued at a premium of at least 30 percent above prevailing market prices for inheritance and gift tax purposes.
But after President Lee ordered a comprehensive review, saying the proposal failed to fulfill its intended purpose, the governing party introduced a tougher revision. It would shorten the assessment period to three years while raising the valuation premium to 40 percent.
Even the original proposal faced criticism for disregarding market valuations and imposing excessive taxes that could infringe on property rights. If the revised bill passes under pressure from party hard-liners, corporate inheritance tax liabilities could double or triple, producing serious unintended consequences.
Business groups warn that some heirs could face tax bills exceeding the value of inherited assets or find themselves unable to pay even after selling all their inherited shares.
Except for certain smaller companies with relatively few outstanding shares, the notion that businesses can readily control their stock prices is outdated. Equating low PBRs with deliberate tax avoidance is equally questionable.
Korea already imposes one of the world's heaviest inheritance tax burdens, making family business succession difficult. Punitive legislation that ignores these underlying problems will not necessarily raise stock prices. Instead, it risks placing additional burdens on businesses and shareholders without addressing the structural reasons behind depressed valuations.
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