KEF: "Direct Cash Refunds for Semiconductor and AI Tax Credits... Subsidies Also Needed"

The Korea Employers Federation (KEF) announced on July 20 that it had submitted a "Tax Reform Proposal to Boost Economic Vitality" to the Ministry of Economy and Finance. The proposal includes 19 tasks aimed at fostering promising industries, such as advanced industries and culture·content, which are key policy objectives of the new government.

The KEF recommended the introduction of a "direct tax credit refund system" to support companies investing in advanced technologies such as semiconductors, artificial intelligence (AI), and future vehicles. The direct tax credit refund system is designed to enable companies to receive tax support for their investments in a timely manner. Currently, even if companies make large-scale investments in advanced technologies to strengthen their competitiveness, they cannot benefit from tax credits if they have no taxable income due to operating losses. In contrast, advanced economies such as the United States, the United Kingdom, and Japan encourage investment by directly refunding the excess tax credit amount in cash or providing fiscal support. The KEF added, "It is also necessary to proactively consider providing direct subsidies for certain strategic industries."

Additionally, the KEF stated that the culture·content industry should be designated as a strategic technology sector and that tax support should be strengthened. In particular, it suggested that the tax credit for video content production costs (ranging from 5% to 15% depending on company size), which is set to expire this year, should be extended or expanded.

The KEF also addressed corporate tax, inheritance tax, and gift tax, which are considered burdensome by companies, in its proposal. It recommended lowering the upper limit of the minimum corporate tax rate from 17% to the global standard of 15% to increase companies' incentives to invest. The KEF also proposed the introduction of a new corporate tax credit system for companies that expand shareholder returns.

Regarding inheritance tax, the KEF stated that the taxable base for inheritance and gift tax, as well as various inheritance deduction limits for children and spouses, should be raised to reflect changes in the size of the economy and asset values. In the short term, it suggested lowering the top inheritance and gift tax rate from 50% to 40% to invigorate the stock market. In the long term, the KEF proposed considering a reduction to the OECD average of 25% and called for the abolition of the uniform premium valuation for shares held by largest shareholders to facilitate smooth business succession.

Ha Sangwoo, head of the KEF Economic Research Division, stated, "For the recent favorable stock market trend to continue, it is essential that corporate fundamentals are strong," adding, "In the face of crises such as concerns over prolonged low growth and fierce global competition, a forward-looking tax reform plan that can support corporate innovation and boost economic vitality is needed."