Voices are calling for a direct refund system that returns investment tax credits in cash regardless of whether operating profit is generated, to maintain the competitiveness of Korea's national strategic industries such as secondary batteries, solar power, and semiconductors. Under the current tax credit, only profitable corporations are eligible, so domestic battery companies that have been posting continued losses cannot benefit. It is the same for the semiconductor and solar industries, which face significant upfront investment costs, making it hard to receive tax credits.
At the "forum on domestic production promotion taxation to strengthen strategic industry competitiveness" held at the National Assembly Members' Office Building in Yeouido, Seoul, on the 12th, Executive Vice President Kim U-seop of LG Energy Solution said, "Right now, only profitable corporations that pay corporate tax can benefit from the tax credit, so future industries such as batteries and solar power, where large initial investments make losses unavoidable, find it difficult to receive practical support," adding, "By allowing direct refunds or transfers to third parties, we should enable not only profitable corporations but also loss-making corporations to benefit."
Kim went on to say, "We need effective tax support linked to production volume and production value, like the U.S. Inflation Reduction Act (IRA)," and noted, "Through precise design—such as limiting the scope to corporations among loss-makers that meet certain conditions—we can minimize the fiscal burden while achieving real support effects."
Under the current Act on Restriction on Special Cases Concerning Taxation, the battery industry, as a national strategic technology, receives roughly a 15% tax credit for facility investment and around 30% for research and development for large corporations. But because the tax credit is deducted from corporate tax, there is no benefit without operating profit. The three major domestic battery companies—LG Energy Solution, Samsung SDI, and SK On—all posted losses in the fourth quarter of last year.
The solar industry also urged the introduction of a direct refund system. Lee Sang-gon, vice chairman of the Korea Photovoltaic Industry Association, said, "Major countries around the world are implementing strong direct support policies for renewable energy corporations to secure manufacturing bases and energy security," adding, "The current tax credit can only be received when profit is generated, so it does not function as a practical support tool for domestic solar manufacturers that are recording losses due to deteriorating profitability. We need to consider introducing a direct refund system and expand the scope of support across the entire value chain."
Experts stressed that major countries worldwide are adopting direct refund systems. Kim Bitmaro, head of the Fiscal Analysis Center at the Korea Institute of Public Finance, who delivered the keynote presentation that day, said, "Major overseas countries are implementing proactive support policies to protect and foster their core industries," explaining, "The United States supports tax credits and direct refunds for advanced manufacturing through the advanced manufacturing production tax credit (AMPC), and Japan also introduced the 'strategic fields domestic production promotion tax system' in September 2024 and is implementing tax credits for industries such as semiconductors, electric vehicles, green steel, and Green Chemical."
Specific measures were also proposed to ensure the effectiveness of the direct refund system. Kim Ki-young, a Myongji University professor and president of the Korean Academic Society of Accounting, said, "For the domestic production promotion tax system to have a real effect, it must be combined with a direct refund system," adding, "When introducing the domestic production promotion tax system, 100% refunds, 20-year carryforwards, allowing overlapping support with the investment tax credit, and excluding the application of the minimum tax must be prerequisites."
Ahn Do-geol, a lawmaker with the Democratic Party of Korea and one of the hosts of the forum, emphasized the need for direct refunds. Ahn said, "Future innovation industries inevitably face extended periods of losses because they require large-scale investments," adding, "We need a Korea-style production promotion tax system that allows support at the point when actual domestic production and supply chains are established and jobs are created, not when profits start to appear."
Ahn added, "In the short term, the domestic production promotion tax system and the direct refund system may be seen as reducing tax revenue, but in the long term, they will help safeguard industries and expand domestic production and exports, thereby protecting and growing the tax base," and said, "We should supplement the existing investment tax credit to preserve its strengths, and the newly introduced domestic production promotion tax system should also be designed as an effective measure."