The battery industry recently asked the government to provide production subsidies instead of tax breaks, according to reports on the 9th. The Ministry of Trade, Industry and Resources is said to agree, while the Ministry of Planning and Budget, the budget authority, reportedly expressed reservations, citing fiscal burdens and the possibility of trade friction.
According to ChosunBiz's reporting, at a "closed-door fiscal support roundtable" jointly hosted on the 6th of last month by the Ministry of Planning and Budget and the Ministry of Trade and Industry (MOTI), the Korea Battery Industry Association (KIBA) said direct subsidies are needed rather than the domestic production promotion tax system.
The domestic production promotion tax system is one of President Lee Jae-myung's campaign pledges. The government is preparing detailed introduction plans, including target sectors and methods of tax relief. Options under review include allowing corporations that produce and sell products in Korea using national strategic technologies such as semiconductors and secondary batteries to deduct part of their production costs from corporate taxes.
In a battery industry promotion pledge posted on Facebook in May last year, when Lee was a presidential candidate, Lee said, "To ensure that the battery industry, as a national strategic industry, can fully benefit from tax incentives that promote domestic production and investment, we will actively consider applying carryforward deductions and adjusting the criteria."
A source in the battery industry said, "Major corporations are all posting losses due to China's low-priced battery offensive and weak demand, so the practical benefit of tax cuts would not be great," adding, "Industry insiders commonly say that cash subsidies would be better." The point is that there is not much tax to pay because they are already in the red. In fact, in the fourth quarter of last year, SK On recorded a 441.4 billion won loss, Samsung SDI 299.2 billion won, and LG Energy Solution 122.0 billion won.
◇ MOTI: "Additional support for the battery industry is needed" vs. Ministry of Planning and Budget: "Concern that direct subsidies could trigger trade friction"
MOTI broadly agrees with the industry's view. It is currently supporting the battery industry by providing purchase subsidies to electric vehicle consumers, but sees this as insufficient on its own.
By contrast, the Ministry of Planning and Budget is expressing reservations, saying there is no precedent for direct subsidies for production costs and that this could potentially violate the World Trade Organization (WTO) Agreement on Subsidies. If the government directly supports production costs in a specific industry, it could face complaints from trading partners, and as production scales up, the scale of support would also expand, pushing fiscal burdens to a level that could be hard to control.
Instead, the Ministry of Planning and Budget is reportedly considering expanding consumer purchase support. Electric vehicle purchase subsidies fell from 5 million won in 2023 to about 3 million won starting last year. Instead, the program was revamped to introduce a separate transition support payment (up to 1 million won) for consumers switching from internal combustion engine cars to electric vehicles.