Government Proposes 'Bio Tax Credit'... Yet '12 Trillion Investment' in Songdo Excluded?

'Aiming for the World's No.1 Manufacturing Nation by 2030
Promoting Tax Credits through Upgrading National Strategic Technologies

Factory Construction Costs, Key to Capacity Expansion,
Excluded from Tax Credit Eligibility'

The government announced the 'Bioeconomy 2.0 Promotion Direction,' which includes expanding tax credits for the biopharmaceutical industry, aiming to become the 'world's No. 1 biopharmaceutical manufacturing country by 2030.' However, voices from the industry have pointed out institutional blind spots, such as the exclusion of factory construction costs?essential for expanding manufacturing capacity?from the tax credit scope, calling for improvements.

On the afternoon of the 19th, the 'Bioeconomy 2.0 Roundtable' is being held at Seoul Bio Hub in Dongdaemun-gu, Seoul.
[Photo by Lee Chunhee]

According to the related industry on the 20th, during a closed-door discussion at the 'Bioeconomy 2.0 Roundtable' held the previous day when the promotion direction was announced, industry voices emphasized the need for effective support rather than merely calling for tax credits. The key 'killer regulation' identified for resolution was the exclusion of tax credits for land and buildings.

An attendee of the meeting said, "Under the current Restriction of Special Taxation Act, it is difficult for costs other than production line construction within factory establishment expenses to be included in the tax credit scope," adding, "Most industry participants unanimously expressed that if building costs are not recognized, it would be difficult to see the practical effects of the tax credit."

According to the current 'Restriction of Special Taxation Act' and related enforcement decrees and regulations, business-use tangible assets such as machinery and equipment are eligible for tax credits, but land and buildings are not. Recently, related industries such as bio- and chemical pharmaceuticals, medical devices, and healthcare have been classified as new growth and core technologies, receiving basic tax credits of 6-18%. The government plans to designate biopharmaceuticals as a national strategic technology like vaccines, raising the tax credit rate to 15% for large and medium-sized enterprises and 25% for small businesses. However, if costs related to land and buildings are not deductible, the benefits may be hollow.

Moreover, since the government aims to become the 'world's No. 1 biopharmaceutical manufacturing country,' increasing production capacity through new factory construction is essential, yet there is no support for this key investment area. In fact, most of the planned investment amounting to 12 trillion KRW in Songdo, Incheon, is excluded from benefits. Currently, in Songdo, Samsung Biologics has announced an investment of 7.5 trillion KRW in the 2nd Bio Campus, aiming to expand production capacity by 720,000 liters by 2032; Lotte Biologics plans to add 360,000 liters of production capacity by 2030 with an estimated total construction cost of 3 billion USD (about 3.8 trillion KRW) for the Songdo Mega Plant (Lotte Bio Campus); and SK Bioscience has set an investment of 325.7 billion KRW for the Research & Process Development (R&PD) Center by 2025. These investments total approximately 11.6257 trillion KRW for factory and R&D center construction.

Samsung Biologics' '2nd Bio Campus', Lotte Biologics' 'Lotte Bio Campus', and SK Bioscience's 'Research & Process Development (R&PD) Center' (from left) to be established in Songdo, Incheon [Photo by each company]

In response, Jeong Il-young, a member of the Democratic Party of Korea representing the Eul district of Yeonsu-gu, Incheon, which includes Songdo, introduced a bill in May to elevate bio to a national strategic technology industry and expand the tax credit scope to include land and buildings invested in national strategic technology industries. Jeong explained the reason for the proposal, saying, "The bio industry is a high value-added industry, and it is necessary to classify it as a national strategic technology so that research and development expenses and facility investment costs can receive higher tax credit rates," adding, "There are concerns that land is excluded from the related investment tax credit, and this needs to be corrected."

According to the cost estimate submitted by the National Assembly Budget Office along with the bill, if land is added to the tax credit scope, tax revenue is expected to decrease by an average of 249.5 billion KRW annually from 2024 to 2025. Especially, the amendment applies the credit from the tax year in which the law is enforced, so if the bill passes within this year, the construction cost of Samsung Biologics' 5th plant, which recently started construction and amounts to 1.9801 trillion KRW, as well as land acquisition and initial construction costs for Lotte Biologics aiming to start construction within the year, will all be eligible for benefits.

The discussion also reportedly mentioned various ways to enhance the effectiveness of tax credits. First, there were voices pointing out insufficient consideration of related industries. For example, messenger RNA (mRNA) vaccines require cold chain (refrigerated and frozen distribution networks) construction for frozen distribution. It was emphasized that tax credits are also needed for related industries, with remarks such as, "Although the government is promoting tax credit expansion, there are considerable concerns that the conditions for tax credits will be stringent," and "Effective policies will be possible only if practical conditions tailored to the characteristics of the bio industry are established."

There were also criticisms regarding the effectiveness of the tax credit system itself. One official said, "Tax credits ultimately benefit those who have taxable income," adding, "Early-stage biotech companies often operate at a loss, so they cannot benefit at all." According to the 2021 corporate tax filings, 52.1% of small and medium-sized enterprises do not bear tax burdens, making cost recovery through tax credits impossible for these companies. He suggested, "There is a need to discuss systems like 'cashback' for investment costs that can help them."

Regarding these criticisms, a Ministry of Trade, Industry and Energy official explained, "This plan is a broad framework, and detailed matters need to be discussed with related ministries," adding, "We plan to disclose related details once they are finalized."

This content was produced with the assistance of AI translation services.