Taxpayer’s Perception to Tax Payment in Kind System in Support of SMEs’ Sustainability: Case of the South Korean Government’s Valuation of Unlisted Stocks

In Korea, unlisted stock shares are accepted as payment for inheritance tax. In the case of insufficient cash, a taxpayer can pay the government with listed or unlisted stocks (hereinafter referred to as “tax payment in kind”). The drawback of this tax payment system is that receiving tax paid with stocks is subject to the valuation of the government and selling the stocks to an open market requires another valuation. The results of these two valuations show considerable differences, and, therefore, the selling price in the open market is very low. This study analyzes how taxpayers recognize the differences in the valuation results of these unlisted stocks and how the differences affect the pricing for repurchasing the stocks from the open market. Results show that high valuation of unlisted stocks in tax payment in kind drives buyers to lower the purchasing price in the open market. This finding implies a problem in the government’s valuation method of unlisted stocks collected as tax.