Jeong Jeong-hoon, center, head of the tax policy division at the Ministry of Economy and Finance, gives a press briefing on the overhaul of inheritance tax code at Goverment Complex Sejong, Tuesday. Yonhap

The government will overhaul the inheritance tax code to make wealth transfer to younger generations more equitable and ease their burden of taxation, in line with the global trend, the Ministry of Economy and Finance said Wednesday.

Under its proposed tax revision, the ministry seeks to levy tax based on the amount of inheritance received by each recipient and therefore split liabilities among beneficiaries with separate tax deductions.

The new recipient-based tax rule will be a shift from the current estate-based system in which tax was imposed based on the total wealth of the donor upon death.

The estate-based tax system has been disputed as many recipients are burdened with a disproportionately large amount of tax compared to the amount of assets they receive from the donor.

"The overhaul of the taxation method is one of the few remaining tasks for Korea in adopting advanced policies in the world," Jeong Jeong-hoon, head of the ministry's tax policy division, said at a press briefing.

He referred to Korea being one of only four countries among the 38 OECD member nations that has an estate-based tax policy, while others impose a recipient-based tax policy.

The four include the United States, the United Kingdom and Denmark.

Jeong noted that the OECD and the International Monetary Fund have assessed the recipient-based tax policy as "more desirable in terms of tax fairness and wealth redistribution."

"We therefore have repeatedly faced demands, as well as criticism, to transform our taxation method in line with global standards," he said, adding, "Today's announcement only includes what is absolutely necessary."

Introduced in 1950, the estate-based tax system has remained unchanged.

The tax burden began spreading from a handful of the wealthiest families to middle-income families, as the system fell short of addressing Korea's rapid economic growth and intergenerational accumulation of wealth over the decades.

The tax burden is especially pressing as Korea's inheritance rate is as high as 50 percent, which is the second highest among the OECD member nations after Japan's 55 percent.

The rate can rise up to 60 percent for those inheriting shares in large corporations.

The government will keep the maximum inheritance tax rate but expects the tax burden from inheriting wealth will be reduced by up to 60 percent with the introduction of the recipient-based tax policy.

Changes to take effect in 2028

For beneficiaries, the spouse will be given a 100 percent tax deduction if the inherited assets are valued at 1 billion won ($689,900) or less, compared to the current 500 million won regardless of the total amount of inherited wealth.

For children, the deductible amount will increase 10-fold, from 50 million won to 500 million won.

Under the revised policy, the surviving family composed of a spouse and two children, will not pay any inheritance tax if the value of wealth transferred from their donor is between 1 billion won and 2 billion won, according to an expert.

"The range is adequately set considering a considerable number of households are believed to inherit corresponding wealth over time," Park Hun, an economics professor at the University of Seoul, said.

Ha Joon-kyung, an economics professor at Hanyang University, also said that the new taxation method is "especially timely in the middle of population decline."

Ha noted that families with multiple children can benefit from the lesser tax burden under the recipient-based rule.

The government plans to submit the proposed tax code revision to the National Assembly for approval in May, after drafting guidelines and undergoing other related processes.

The government expects the reform to take effect in 2028, after establishing the necessary taxation rules and supplementary legislation between 2026 and 2027.

Whether the reform can be implemented will largely depend on the main opposition Democratic Party of Korea (DPK), which holds the majority at the Assembly.

After the finance ministry's announcement, the DPK downplayed the government's proposal as "hasty and reckless."

"It takes years of work to revise tax code and yet the government suddenly came up with a proposal," said DPK lawmaker Lim Kwang-hyun, referring to his experience as former deputy commissioner of the National Tax Service.

Lim said the government remains clueless in coping with the shortfall in tax revenue, while the reform would reduce the revenue at a faster pace.

The ministry estimates that the revised tax code will diminish taxable income by more than 2 trillion won.