Recently, the electric vehicle battery industry, which is struggling with funding difficulties due to poor performance, is demanding the government introduce a 'battery direct refund system.' This system means providing tax credit amounts as a cash refund. However, the government is currently hesitant to implement it, citing concerns over insufficient tax revenue and fairness among different industries.
On the 19th, according to the battery industry, domestic secondary battery manufacturers and battery material companies, including LG Energy Solution, Samsung SDI, and SK On, have appealed to the government and political circles to implement the battery direct refund system this year. In February, a discussion forum on the need for introducing the direct refund system was held at the National Assembly with stakeholders from the political circles, the Ministry of Economy and Finance, and the industry.
According to the current Domestic Tax Exemption Limitation Act, corporations in industries classified as national strategic technologies, including electric vehicle batteries, semiconductors, and biotechnology, receive a 15% tax credit for facility investments. This reduces corporate tax applied to the profits earned by corporations, meaning that companies operating at a loss cannot benefit from it.
The direct refund system provides tax credit benefits as cash refunds, effectively resembling a form of subsidies. In other words, it means corporations can receive the amount of tax credits they would get when investing in battery production facilities not as taxes paid, but rather as cash. When this system is implemented, corporations can secure more funding for further investments.
The United States supports the electric vehicle and battery industries in a similar manner. The Inflation Reduction Act (IRA), implemented since 2022, includes the Advanced Manufacturing Production Credit (AMPC). The AMPC directly refunds 30% of the investment amounts to corporations producing batteries and related components in the U.S., along with subsidies of $45 per kWh.
Battery manufacturers claim that due to the chasm affecting electric vehicle demand, which has persisted for several years, as well as the increased management uncertainties following the inauguration of the Donald Trump administration earlier this year, support systems like the IRA must be introduced.
Indeed, the battery industry has been experiencing continuous poor performance recently. LG Energy Solution recorded an operating profit of 374.7 billion won in the first quarter of this year, but this was due to the reflection of the tax credit from the U.S. IRA. Excluding the tax credit, it incurred an operating loss of 83 billion won. During the same period, Samsung SDI reported an operating loss of 434.1 billion won, while SK On recorded an operating loss of 299.3 billion won.
As poor performance continues, the battery-related industry is desperately trying to secure funds through corporate bond issuance and capital increases. LG Energy Solution issued corporate bonds valued at 1.6 trillion won in February and foreign currency bonds worth $2 billion (approximately 2.8 trillion won) in March. Samsung SDI also announced a plan for a capital increase worth 1.7282 trillion won. POSCO FUTURE M, a battery material company under POSCO Group, also stated that it would secure 1.1 trillion won through a capital increase.
However, the government maintains a negative stance on the introduction of the battery direct refund system. It argues that funding support is difficult due to insufficient tax revenues and the increasing burden on national finances. Furthermore, concerns have been raised about fairness, as corporations in other advanced industries, such as semiconductors and biotechnology, are also suffering from poor performance.
On the other hand, voices are growing in the political sphere advocating that various support measures, including the direct refund system, are necessary to maintain the global competitiveness of the domestic battery industry. Kim Sang-hoon, a member of the People Power Party, proposed a bill to introduce 'national strategic technology direct refund and credit transfer,' referencing the U.S. IRA last year, and Shin Young-dae, a member of the Democratic Party of Korea, has argued for the need to introduce a similar bill this year.
A battery industry official noted, 'Both ruling and opposition parties acknowledge that the domestic battery industry is facing a crisis due to the electric vehicle market downturn and the Trump administration’s inauguration,' adding, 'There is a high possibility that the new government, which will be launched after next month’s early election, will implement the battery direct refund system.'