"3% Tax Credit Needed for Relief"... Petrochemical Industry Calls for Revival of Temporary Investment Tax Credit

Tax Credit System Sunset at the End of Last Year, Moves for Renewal Emerge
Industry Voices: "Economic Downturn Continues... Investment Incentives Must Increase"
Petrochemical Sector Urgently Needs Incentives Due to Large-Scale Investments

The petrochemical industry, which needs to address the reduction of naphtha cracking center (NCC) production capacity, is once again calling for an extension of the "temporary investment tax credit" for large corporations, which expired at the end of last year. Given that facility investments in this capital-intensive industry require trillions of won, and that companies are also facing pressure to scale down facilities due to sluggish market conditions, there is growing support for the view that "tax incentives should continue at least this year."

According to political circles and industry sources on August 22, the National Assembly is considering raising the tax credit rate for temporary investment costs for large corporations. The temporary investment tax credit was a system introduced by the government in 2023 to stimulate domestic demand and promote corporate facility investment. Under this system, large corporations could receive a 3% tax credit on investment amounts, mid-sized companies 7%, and small businesses 12%. However, from 2024, large corporations were excluded from the scheme. As a result, S-Oil missed out on approximately 110 billion won in tax benefits from last year's investments.

The petrochemical industry is a representative capital-intensive sector in Korea, characterized by large-scale and long-term facility investments. Building even a single new process can cost hundreds of billions of won, and developing new technologies requires years of research. If tax incentives are cut off even temporarily, it can destabilize companies' entire long-term investment plans. Especially recently, with global oversupply and weakening downstream demand increasing the pressure for facility reduction and adjustment, the industry emphasizes that "tax credits can serve as the minimum incentive for investment."

While the Democratic Party of Korea was previously opposed to extending the system, labeling it a "privilege for large corporations" during its time in opposition, the party's stance has shifted following the change in administration. Assemblyman Kim Kyoheung of the Democratic Party has sponsored an amendment to the Restriction of Special Taxation Act, applying the same tax credits as before-3% for large corporations, 7% for mid-sized companies, and 12% for small businesses-limited to facility investments in industrial crisis areas. Assemblyman Joo Cheolhyeon of the Democratic Party has also sponsored the "Special Act on the Petrochemical Industry," which includes comprehensive support measures such as tax credits.

The industry is facing a significant reduction in its investment capacity due to increases in electricity rates, global oversupply, and sluggish demand. An industry official stated, "Even last year, we prepared our budgets on the assumption that the extension would go through, but we are now facing difficulties due to the sunset of the policy." The official added, "The petrochemical sector is in an even more difficult situation for large corporations. In a prolonged market downturn, at least a minimum level of policy support is necessary."