The Democratic Party of Korea is pursuing amendments to tax laws that support strategic industry domestic production corporations, while considering applying the tax cuts originally limited to 'domestic sales' to 'export items' as well. The plan focuses on expanding the corporate and income tax reduction benefits according to the needs of key export sectors like displays. However, it has decided to review this carefully, taking into account the tariff measures and subsidy eliminations of the U.S. Donald Trump administration regarding trade issues.
On the morning of the 13th, Democratic Party members of the National Assembly's Strategy and Finance Committee held a policy discussion titled 'The need for introducing the strategic industry domestic production incentive tax system' at the National Assembly Office Building and collected opinions from industry representatives. Representatives from the automobile, semiconductor, steel, chemical, defense, hydrogen, and battery sectors attended the discussion.
Jung Tae-ho, the opposition party member serving as the chair of the discussion, noted, 'The need for national-level industrial support is emerging globally,' and added, 'Representative Lee Jae-myung has mentioned tax support for promoting national strategic industry domestic production and sales, and discussions are underway at the committee level for legislative introduction.'
The domestic production incentive tax system is a measure that Democratic Party Representative Lee Jae-myung indicated in a visit to Hyundai Motor's factory on the 20th of last month. Subsequently, Rep. Jin Seong-jun, the policy committee chair, revealed legislative plans at an official party meeting, and Rep. Kim Tae-nyeon introduced the 'special tax law amendment' as the primary sponsor. The amendment states that among corporations producing goods in strategic industries such as semiconductors, batteries, vaccines, and displays, only those producing and selling domestically by December 31, 2035, may deduct an amount equivalent to 15% of production costs from their income tax or corporate tax.
◇Opposition: 'If only trade issues are resolved'... also considering application to export items
Industry representatives requested during the discussion to expand the benefits of the domestic production incentive tax system to include export items. Currently, the bill being pursued by the Democratic Party only applies to items categorized as 'domestic production and domestic sales' among strategic industry goods. However, given that the structure of major domestic industries is export-oriented, the proposal is intended to increase the system's effectiveness by granting tax cut benefits to export items as well.
Jo Eun-sook, head of the Korea Display Association, stated, 'While we receive support through existing investment tax credits, it is true that there is a lack of substantial tax credits.' She expressed her support for the domestic production tax credit legislation but added, 'Given that displays primarily engage in sales overseas, it would be beneficial if exports were included as well.'
In response, Rep. Kim Tae-nyeon said, 'The inability to include export items in the tax credit may pose the risk of encountering trade issues,' although he noted, 'Currently, the law is limited to domestic sales, but since domestic corporations have significant export volumes, it would be nice to include tax credits for export items.' He also mentioned, 'The only issue is whether it will be applicable to overseas sales,' asserting, 'I believe that once the trade issue is resolved, there will be no need to limit export items.'
In reality, while the industry welcomes the Democratic Party's tax support, there are significant concerns about backlash from the Trump administration. Direct support for domestic corporations' export items could potentially lead to a 'tariff backlash.' In this context, the Democratic Party has decided to consider tax support for export items on the premise of reviewing trade issues.
◇Pushing for direct refund system and third-party transfer system
Meanwhile, the Democratic Party plans to accept industry demands by introducing a 'direct refund system' for cash refunds of tax credits, and a 'third-party transfer system' for unused tax credits. These provisions are included in the amendment to the special tax law that Rep. Kim introduced.
Rep. Kim stated, 'I have heard many cases where corporations struggle because they cannot immediately refund tax credits,' and added, 'If we are to introduce the production promotion tax system, I think we should implement a third-party transfer system for refunds. After about three years, we plan to introduce a system where they can receive direct refunds and transfer refund amounts.' A key figure in the Strategy and Finance Committee also noted, 'Ultimately, trade issues are key,' stating, 'Since there are many export-oriented companies among strategic industries, we will review how to support them while effectively resolving trade issues.'