Minister Kim Jung-kwan of the Ministry of Trade, Industry and Resources said on the 12th at the full session of the Trade. Industry Energy. SMEs. and Startups Committee that the government would discuss allowing steel and petrochemicals to qualify for the domestic production tax credit.
The domestic production tax credit is a system that reduces income and corporate taxes in proportion to the performance of corporations that produce and sell domestically. Steel and petrochemicals are excluded from the industries eligible for tax credits under the Act on Restriction on Special Cases Concerning Taxation proposed by the Ministry of Economy and Finance. The eligible industries are six: ▲ semiconductors ▲ solar power generation ▲ wind power generation ▲ secondary batteries (batteries) ▲ key materials ▲ artificial intelligence (AI) robot parts.
The Ministry of Economy and Finance said it would set specific tax credit-eligible items by industry when drafting the enforcement decree. The Ministry of Trade and Industry (MOTI) was said to be planning to discuss ensuring that steel and petrochemical materials used in the six key industries become tax credit-eligible items. If so, steel and petrochemicals would be able to receive tax credit benefits indirectly.
MOTI is pursuing this approach because the steel and petrochemical sectors are experiencing a structural downturn and are seen as needing tax support. It also considered that steel and petrochemical sectors generally produce intermediate goods that go into other industries. For example, among the four key battery materials, separators and electrolytes (organic solvents) are products produced by petrochemical corporations. Polyethylene (PE) and polypropylene (PP), which are raw materials for separators, are representative. The encapsulant (EVA) that wraps solar modules is also a petrochemical material.
The prototype for this indirect design is batteries. The government excluded electric vehicles, which the finished car industry had demanded, from eligibility, but included batteries. It judged that batteries have broad spillover effects because they are used across various industries. A Ministry of Economy and Finance official said, "If we support batteries, electric vehicles are supported indirectly, and we can also reduce the risk of trade disputes that could arise from directly supporting electric vehicles," adding, "These effects extend to other industries that use batteries."