The Democratic Party of Korea is pushing for a tax law amendment aimed at lowering the corporate tax for domestic production companies in low-carbon sectors such as electric vehicles under the guise of protecting 'national strategic technologies'. This involves creating additional tax support separate from the existing 'integrated investment tax credit'. The aim is to allow corporations to choose to apply these benefits. The main point is to reduce corporate tax for up to 10 years based on domestic production and sales volume, with some amounts returned as cash.
According to a comprehensive report by ChosunBiz on the 25th, Democratic Party members of the National Assembly's Planning and Finance Committee discussed a revision to the Special Tax Treatment Restriction Act in a closed meeting the previous day. This tax system refers to the tax incentive system introduced by Japan and the United States to promote the production of strategic industries. Representative Lee Jae-myung announced the introduction of the 'tax system to promote domestic production of strategic industries' during a visit to a Hyundai Motor plant in Asan, South Chungcheong Province, on the 20th.
According to current law, the semiconductor, secondary battery, vaccine, display, and biopharmaceutical sectors are included in national strategic technologies and receive tax credits for R&D (research and development) and facility investment. The credit rates are 15% for large and medium-sized corporations and 25% for small businesses. Among these, the semiconductor sector sees a respective increase of 5 percentage points. This was the result of the related law being passed by the Finance Committee, which is in charge, on the 18th. The more frequently equipment is changed, the greater the tax support. This is advantageous for sectors with frequent facility investments.
The actual 'integrated investment tax credit' is a system focused on facility investment and increasing production capacity. That is, it is favorable for the semiconductor industry, which must continually construct new facilities. On the other hand, there have been suggestions that it is somewhat distant from enhancing production efficiency for other sectors, such as automobiles. This is because once production facilities are installed, they are hardly replaced.
The tax law amendment being pursued by the Democratic Party considers this and includes provisions for tax credits for certain amounts on domestic production and sales of strategic technologies and new growth and fundamental technology sectors such as electric vehicles and low-carbon green steel, as well as the refund of some of the tax credit amounts in cash. Specific figures or limits will be discussed further.
In particular, it is said that during the discussion process, they referred to Japan's 'tax incentive system to promote domestic production in strategic sectors'. In Japan, tax benefits are given based on domestic production and sales volume for electric vehicles (batteries) at 400,000 yen per unit and for semiconductors at a maximum of 16,000 yen per wafer. The intention to enhance the competitiveness of domestic manufacturing directly related to achieving carbon neutrality is reflected.
Within the Democratic Party, they are considering not only proposing a bill at the level of the Finance Committee but also holding discussions. There are concerns that this may become a source of trade disputes. This is based on industry worries that the U.S. administration might raise issues regarding equity with products produced overseas and sold domestically.
This discussion is a measure to maximize the 'centrist conservative expansion strategy' in an early presidential election phase. Last year, Representative Lee abolished the financial investment income tax and deferred taxation on virtual assets, accelerating his 'rightward shift'. Recently, he has been continuously unveiling tax cuts for inheritance tax, earned income tax, and comprehensive real estate tax. Having preempted the issue of middle-class tax cuts, this measure aims to extend into corporate tax cuts as well.
A Finance Committee official stated, 'We plan to allow individual corporations to choose to apply investment tax credits and production tax credits' and added, 'This is intended to support the production and employment increase of domestic corporations as part of nurturing the value chain.'