15% Deduction for Large Corporations, 25% for SMEs
Expansion of National Strategic Technology Sectors Including Hydrogen and Electric Vehicles
Korean Version of IRA
The Democratic Party of Korea is proposing the 'K-Chips Act' (an amendment to the Restriction of Special Taxation Act) to expand tax credits for facility investments such as semiconductors. The core of the proposal is to accept the government’s plan to raise the tax credit rate on investment amounts to 15% for large corporations and 25% for small and medium-sized enterprises (SMEs), and to include industries such as hydrogen and electric vehicles as eligible sectors in the law itself rather than in enforcement ordinances.
On the afternoon of the 14th, the Democratic Party’s floor leadership and Democratic lawmakers from the National Assembly’s Strategy and Finance Committee met in the floor leader’s office to discuss and finalize this plan.
Policy Committee Chair Kim Seong-hwan stated in a back briefing after the meeting, "The so-called Korean version of the IRA Act (Special Measures Act for Protecting Carbon Neutral Industries and Enhancing Competitiveness) will be proposed as a bill by the Industry, Trade, Small and Medium Enterprises Committee, and the amendment to the Restriction of Special Taxation Act related to investment tax credits will be proposed as a bill by the Strategy and Finance Committee." Representative lawmaker Yang Yi-won-yeong from the Industry Committee and lawmaker Shin Dong-geun from the Strategy and Finance Committee will each propose the bills tomorrow.
Regarding the tax credit rate for facility investments in national strategic technologies such as semiconductors, the Democratic Party decided to accept the existing government proposal. The government’s submitted amendment to the Restriction of Special Taxation Act raises the tax credit rate for large and medium-sized enterprises from the current 8% to 15%, and for SMEs from 16% to 25%. It also includes a provision to increase the additional tax credit rate from 4% to 10% this year if investments exceed the average investment amount over the past three years.
However, Policy Committee Chair Kim added, “There should be an official expression of regret from the government regarding the issue where, despite the government’s position effectively changing from 8% last year to 15% this year in the investment tax credit rate, it was portrayed as if the opposition party was obstructing.”
Previously, the Democratic Party considered introducing higher credit rates than the government’s proposal, but ultimately decided to accept the government’s rates while adding a plan to elevate the eligible industries from enforcement ordinances to statutory law. A Strategy and Finance Committee official explained, "Various options were reviewed, but after discussions with the government side, the decision was made to accept the government’s plan." Lawmaker Shin stated, "Currently, even if national strategic industries are selected as industry groups under the Restriction of Special Taxation Act, the technologies are designated through enforcement ordinances," explaining the purpose of the proposal.
The 'national strategic technology' industries eligible for investment tax credits will be expanded to include not only semiconductors and secondary batteries from the government’s proposal but also carbon-neutral industries (renewable energy, hydrogen) and future mobility (electric vehicles). Policy Committee Chair Kim explained, "Although these have been considered new growth engines, there has been some lag in fostering them as advanced industries," adding, "Our party’s policy is to focus on nurturing not only semiconductors but also industries like renewable energy and green hydrogen."
The Democratic Party plans to enter negotiations with the ruling party based on this bill at the National Assembly’s Strategy and Finance Committee’s tax subcommittee on the 16th. Meanwhile, on the same day, the Ministry of Economy and Finance urged the National Assembly to promptly pass the amendment to the Restriction of Special Taxation Act through reference materials titled 'The Need for Swift Amendment of the Restriction of Special Taxation Act.'
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