"Battery Display Situation... LCD-like Collapse" Unified Call for Tax Credit Cash Refund Like US IRA

Assemblyman Kim Sang-hoon Hosts 'Discussion on Introducing IRA Direct Rebate System'

There are calls to introduce a direct refund system that converts tax credits into cash to foster the domestic battery industry. Experts warn that since batteries are a strategic industry where market dominance through economies of scale is crucial, missing early investments could lead to a repeat of the 'LCD (Liquid Crystal Display) nightmare' where China overtook the market.

On the 14th, Kim Sang-hoon, a member of the National Assembly's Planning and Finance Committee from the People Power Party, held a forum titled ‘Discussion on the Introduction of IRA Direct Refund System’ at the National Assembly Members' Office Building. In May, referencing the IRA legislative example, Kim proposed a partial amendment to the Restriction of Special Taxation Act that would allow companies engaged in national strategic technology projects to receive direct cash refunds for unused tax credits due to operating losses or transfer them to third parties.

The proposal was submitted as an agenda item at the full meeting of the Planning and Finance Committee on the 13th and will be reviewed by the relevant subcommittee next week. Kim said, “There was a tax revenue shortfall of 59 trillion won in September this year,” adding, “Although the timing may not seem ideal, we need to break the conventional framework and create a foundation for companies to invest in the Republic of Korea.”

On the same day, Kim Woo-chul, a professor in the Department of Taxation at the University of Seoul, presented on ‘Introduction of Refundable Tax Credits for National Strategic Technologies, Focusing on Advanced Secondary Battery Technologies.’ He stated, “The U.S. does not provide 20-30% investment cost tax credits after paying taxes but rather reduces taxes with each production, which is almost a self-defeating strategy,” adding, “Although it is called a tax credit, it is essentially a cash subsidy policy.” He further noted, “SK On will need 11 trillion won concentrated between 2024 and 2026 for new factory operations,” emphasizing, “Introducing a direct refund system is urgent to support domestic companies whose incentives are weaker than those of major countries.”

On the 14th, participants are taking a commemorative photo at the seminar room of the National Assembly Members' Office Building in Yeouido, Seoul, during the discussion on the introduction plan of the IRA direct refund system to strengthen the competitiveness of national strategic advanced industries.
[Photo by Choi Seoyoon]

Kang Seok-gu, head of the Korea Chamber of Commerce and Industry’s Research Headquarters, cited extensive overseas subsidy support cases and described the current situation as akin to a war. Kang emphasized, “The battery market is no different from wartime,” and stressed, “Since achieving economies of scale early is key for strategic industries, even if subsidies are difficult, a direct refund system that produces effects equivalent to subsidies must be introduced.”

He added, “As investment increases in the battery industry, production costs decrease, so the core is to invest faster and more than competitors to lower costs,” and warned, “The government worries about finances, but the later the investment, the fewer seeds there are to secure finances.”

Concerns about a d?j? vu of the ‘LCD collapse’ were also raised. Jang Sang-sik, head of the Trend Analysis Office at the Korea International Trade Association, said, “Just like the LCD industry collapsed under China’s massive subsidy offensive, the battery industry could follow the same path,” and added, “Even if direct cash payments or third-party transfers are not allowed, funds that will eventually be paid out when profits arise must be advanced (in some form) like in the U.S. or other countries.” He explained, “The battery industry is dominated by companies that capture the market through massive initial investments and expand the market via price dumping, so second and third place have no meaning,” and suggested, “If there are difficulties due to national finances or fairness, a strategic industry national promotion fund could be created to provide support.”

Opposing views were also raised regarding fairness issues related to cash support. Hwang Seong-pil, a researcher in the Fiscal and Economic Team at the National Assembly Legislative Research Office, said, “The current system has limitations in supporting industries requiring large-scale facility investments,” but cautioned, “Introducing the amendment would effectively exclude the application of minimum tax on the national strategic technology investment tax credit system.” Park Geum-cheol, Tax Policy Officer at the Ministry of Strategy and Finance, also said, “We need to consider whether the refundable tax credit system, originally designed for low-income groups, can indeed be introduced for the battery industry.”

Oh Jeong-gang, CEO of Enchem, which supplies electrolyte to the three domestic battery companies, explained that support for the battery industry has a ‘trickle-down effect’ positively impacting small and medium-sized enterprises. Oh said, “In the case of electrolytes, factories are built close to battery plants to supply them,” adding, “Small and medium-sized parts, materials, and equipment companies expand their businesses and enhance competitiveness by following the three battery companies.”

He continued, “I don’t understand why there needs to be a debate about whether a direct refund system, designed for low-income groups, can support large corporations or about fairness,” emphasizing, “The battery industry is not in a normal situation but in a wartime scenario.”

Go Chang-guk, Vice President of SK On, also mentioned the need to introduce the amendment from the perspective of building a battery ecosystem. Go said, “When domestic battery companies build overseas production plants, investments by equipment, materials, and parts suppliers for those plants are mostly made domestically,” and added, “While the benefits of the direct refund system would be limited to battery companies investing domestically, most of the benefits will flow to companies participating in the battery ecosystem.”

CATL's Shanghai factory, a Chinese electric vehicle battery manufacturer

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