South Korea's Democratic Party proposed inheritance and gift tax reform could eliminate incentives for major shareholders to suppress stock prices, according to analysis from Hanwha Investment & Securities. Researcher Eom Su-jin stated in a report published on the 10th that the 'PBR 0.8x Law' would remove motivation to keep prices low and instead create incentives to raise valuations to the 0.8x price-to-book ratio threshold. The bill, proposed by Democratic Party Rep. Lee So-young in May 2025, sets a tax valuation floor at 80% of net asset value for listed companies trading below 0.8x PBR. Current inheritance and gift tax law values listed stocks at the average market price during the two months before and after the transfer event, creating lower tax burdens when stock prices remain depressed.
PBR 0.8x Law Sets Tax Floor at 80% of Net Asset Value
The proposed amendment, also called the 'Stock Price Suppression Prevention Law,' changes valuation methods for listed companies with market capitalization below 80% of net asset value. Under the reform, inheritance and gift taxes on such companies would be calculated using asset and earnings evaluations similar to unlisted stocks, with a floor set at 80% of net asset value. Rep. Lee So-young proposed the bill in May 2025 and recently announced plans to include it in the government's tax reform package scheduled for release at the end of July, while simultaneously pursuing review by the National Assembly's Strategy and Finance Committee.
Analyst Predicts Removal of Price Suppression Incentives
Eom Su-jin stated that the reform's primary effect would be eliminating major shareholders' incentive to maintain low stock prices and providing motivation to raise prices to the 0.8x PBR level. Under current law, lower stock prices reduce tax burdens, creating a side effect where major shareholders suppress price increases. The reform would eliminate this benefit for companies below 0.8x PBR, as taxes would be assessed at 80% of net asset value regardless of market price. Major shareholders would gain no advantage from price suppression and would benefit from raising stock prices to increase the market value of their holdings.
Extended Installment Payments Create Sustained Management Motivation
The report projected that the law's effects would extend beyond the initial tax calculation through the entire installment payment period. Domestic major shareholders prefer stock-backed loans or partial stake sales over dividends when raising funds for inheritance and gift taxes, as dividends face comprehensive income tax that significantly reduces net proceeds. Stock-backed loans and stake sales benefit from higher stock prices through increased borrowing limits and larger sale proceeds, motivating active price management. The PBR 0.8x Law would increase tax assessments several times over current levels, likely extending installment payment periods to their maximum durations (inheritance tax 10-20 years, gift tax 5-15 years). During these extended periods, major shareholders would have maximized incentives to maintain high stock prices for loan repayment and stake sales.
Three Company Types Identified for Monitoring
Eom identified three company categories warranting attention if the amendment passes. First, companies with chronic undervaluation lacking clear justification for low PBR—those without structural issues like declining industries or high debt dependence may have experienced intentional price suppression by major shareholders, creating potential for sharp price increases. Second, companies where major shareholders are approaching succession age or have recently appointed children as executives, indicating succession processes have begun. Third, companies with large ownership gaps between major shareholders and children face higher tax burdens from larger stake transfers, making them more likely to actively manage stock prices following the law's passage.
![Yeouido securities district]()
Yeouido securities district [Photo by Ahn Cheol-soo]
FAQ
What does the PBR 0.8x Law proposed by South Korea's Democratic Party do?
The law sets a tax valuation floor at 80% of net asset value for inheritance and gift taxes on listed companies trading below 0.8x price-to-book ratio. It was proposed by Rep. Lee So-young in May 2025 and is planned for inclusion in the government's tax reform package at the end of July.
Why does Hanwha Investment & Securities analyst predict the reform will end stock price suppression?
Analyst Eom Su-jin stated that under the reform, companies below 0.8x PBR would be taxed at 80% of net asset value regardless of market price, eliminating the current tax benefit of keeping stock prices low. Major shareholders would instead benefit from raising prices to increase their holdings' market value, creating incentives to manage prices upward during extended installment payment periods of up to 10-20 years for inheritance tax.
