The aviation engine sector is expected to be elevated to national strategic technology, with strengthened tax benefits. The key aspect of achieving national strategic technology, which is one level higher than new growth and foundational technology, is the increase in tax relief benefits for research and development (R&D) expenses. Kim Dong-kwan, CEO (Vice Chairman) of Hanwha Group, who has chosen aviation engines as a future growth engine, has been requesting the designation of aviation engines as national strategic technology since last year.
According to military authorities and the defense industry on the 26th, Yoon Han-hong, a member of the People Power Party, submitted a revision bill to the Restriction of Special Tax Treatments Act last month, which includes biopharmaceuticals and the defense industry as national strategic technologies in collaboration with the Ministry of Strategy and Finance. The revision bill contains plans for the Defense Acquisition Program Administration to support aviation engines following discussions with the Ministry of Strategy and Finance. Similar to semiconductor technology, the core idea is to designate aviation engines as national strategic technology and extend the sunset period from the end of this year to three years, thereby increasing tax benefits.
If the bill passes, the tax credit rate for aviation engine R&D will increase from 18% to 30% for large corporations. Mid-sized companies will see the same rate, while small businesses will receive an increase to 40%. Tax deductions for labor costs will also rise. A defense industry official noted, "The aviation engine sector requires significant expense and time. It differs from the existing defense industries that the government invests in," adding that "the Ministry of Strategy and Finance believes that strategic nurturing is necessary." Currently, Hanwha Aerospace and Doosan Enerbility are engaged in aviation engine development.
Defense companies have been demanding a revision of the law. The defense industry has been receiving investment tax credits of 6-18% since being designated as 'new growth and foundational technology' following a revision of the special tax treatment law enforcement ordinance in January. However, the targeted technologies include propulsion systems, military satellite systems, and manned/unmanned integrated systems technology, and the aviation engine sector has faced difficulties in investment due to unclear criteria. Vice Chairman Kim Dong-kwan also actively requested the designation of aviation engines as national strategic technology from President Yoon Suk-yeol during the second joint defense export strategy meeting with the public and military in December last year.
On the 20th, the government designated key materials and component technologies for aviation engines of 15,000 lbf (pound-force engine output unit) or higher for manned and unmanned aircraft as part of national advanced strategic technologies. This will take effect after undergoing administrative notification and other procedures, and is expected to be announced in January next year. The Defense Acquisition Program Administration plans to accelerate the nurturing of aviation engines by amending the special tax treatment law next year.
Aviation engines are key devices that determine the performance of aircraft. Only a few countries, including the United States, the United Kingdom, France, and Russia, possess their own technologies. An industry official said, "Support is needed to ensure that aviation engines can gain global competitiveness."