President Lee Jae-myung on Friday stressed that the current family business inheritance tax deduction system "must be thoroughly overhauled to match the original intent of the system — so it cannot be exploited." He also sharply criticized the current rule that qualifies a business as a family enterprise after just 10 years of management, saying, "How is something run for 10 years a family business?" He added, "Samsung Electronics Chairman Jay Y. Lee is far more specialized in Samsung's semiconductor business than someone running a parking lot, so his claim to a family business would actually be stronger."
The president issued the directives after receiving a briefing from the National Tax Service (NTS) on the current state of the family business inheritance tax deduction system during an emergency economic review meeting and Cabinet session held at Cheongwadae. The deduction allows heirs such as children to receive up to 60 billion won ($44 million) in inheritance tax exemptions when succeeding a family business that has been managed for 10 years or more.
NTS Commissioner Im Gwang-hyeon, who presented the "Survey Results and Improvement Plan on Family Business Inheritance Tax Deductions," reported that among 25 sampled large self-owned bakery cafes in the Seoul metropolitan area, 11 — or 44% — showed signs of deduction abuse. "Under current rules, land up to seven times the building area can be included as business premises, but there were cases where temporary structures were erected just before inheritance to claim additional deductions, exceeding 37 times the building area," Im reported.
Regarding the inclusion of parking lots as eligible businesses, Im said they are "far removed from the transfer of corporate expertise and technology, and are industries with disproportionately large real estate holdings." He added, "Of 1,321 privately owned parking lots in the metropolitan area, 761 — or 58% — opened after 2020, when parking lots became eligible for the family business deduction."
President Lee responded, "This is outrageous. The family business inheritance deduction is supposed to be for businesses passed down through generations that would shut down if not handed to the children. If anyone else can easily take over the business, why should we cut their taxes?" He continued, "If there is no social necessity to maintain a business to the point of exempting inheritance taxes, there is no reason to have such a system." He also raised his voice regarding the executive decree that expanded eligible industries to include logistics, saying, "We need to look into who drafted that executive decree."
The president was particularly scathing about parking lot businesses being included in the deduction scheme. "Someone owns 50 billion won worth of real estate, sets up a parking lot regardless of whether there are any customers, hires part-timers generating 1 million won in monthly revenue, and after 10 years can pass it all on tax-free," he said. When Commissioner Im confirmed this was the case, the president responded, "People who pay their taxes are fools."
Lee added, "In terms of what qualifies as a family business, Samsung Electronics Chairman Jay Y. Lee is far more specialized in Samsung's semiconductor operations than someone running a parking lot, so his claim to a family business would actually be stronger."
On improving the deduction system, the president directed officials to "stop blanket inclusion of entire industries, which only invites abuse, and instead pinpoint where the deductions are truly needed. Establish a review committee where ordinary citizens can participate in screening, and make the procedures strict." He added, "The deductions should apply to things of genuine value — this is not a game. Don't expand the scope — narrow it down decisively."
"A national system should have at least a minimum level of rationality, but looking at this family business inheritance deduction, I am speechless," the president said. "How is 10 years a family business? The qualifying period needs to be extended. If a business has only been running for 10 years but genuinely warrants protection as a family enterprise, then separate provisions should be established with strict criteria."