'Bio as a National Strategy'... Is the 'Key Support' Tax Credit Uncertain?

Land and Buildings, Essential Targets for Industrial Promotion Excluded
Ministry of Economy and Finance: "Exclusion of Facility Investment is the Principle"
Concerns Over Most of Songdo's '12 Trillion Investment' Being Excluded

"Need to Consider Contribution to National Economy Despite Tax Revenue Decline"
"Essential for Industrial Promotion"... "Expecting Trickle-Down Effects"

The government has set the goal of becoming the 'world's number one biopharmaceutical manufacturing country by 2030' and has prepared industrial promotion measures such as tax credits for the biopharmaceutical industry. However, the industry is expressing dissatisfaction, saying that the policies lack effectiveness. In a situation where manufacturing capacity must be expanded through large-scale investment, it is pointed out that the core factory construction costs are not eligible for benefits, making the measures close to a 'fish-shaped bread without red bean paste.'

On the 22nd, deliberation materials were placed at the Tax Subcommittee of the Planning and Finance Committee held at the National Assembly. Photo by Hyunmin Kim kimhyun81@

On the 28th, the National Assembly's Planning and Finance Committee held a tax subcommittee meeting to discuss applying investment tax credits to land and buildings for 'national strategic technologies' such as biopharmaceuticals. In May, Jeong Il-young, a member of the Democratic Party of Korea, proposed an amendment to the Restriction of Special Taxation Act regarding this matter.

However, Kim Byung-hwan, the first vice minister of the Ministry of Economy and Finance, emphasized that "it is a consistent principle not to include facility investments such as land and buildings when providing investment tax credits," and both the Ministry of Economy and Finance and the ruling People Power Party have expressed opposition due to concerns over tax revenue reduction and fairness among industries, causing difficulties in the process. If the bill passes, such benefits would spread not only to the bioindustry but also to the entire national strategic technology industry, leading to a significant decrease in tax revenue. As a result, there are even concerns that it may be difficult to pass within the 21st National Assembly.

Despite 'Tax Benefits' Announcement... Concerns Most of the '12 Trillion Won Investment in Songdo' Will Be Excluded

Within the industry, there have been continuous criticisms about the sluggish discussion despite the issue being persistently raised through events such as the 'Bioeconomy 2.0 Roundtable' held in July. The vaccine and biopharmaceutical industries are designated as national strategic technologies, and large and medium-sized enterprises receive investment tax credits of about 25%, while small and medium-sized enterprises receive about 35%. However, the industry's voice is that there is virtually no support for factory establishment, which requires large-scale investment, except for the cost of constructing production lines. An industry official pointed out, "To have global competitiveness, facilities must meet global standards. It is not just a simple building but a part that requires enormous investment, and support for this is lacking."

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]

Currently, contract development and manufacturing organization (CDMO) companies are rushing in, and an investment of 12 trillion won is planned in Incheon Songdo alone, but most of it is expected to be excluded from benefits. In Songdo, there are plans for factory and R&D center construction through investments of approximately 11.7116 trillion won, including ▲ Samsung Biologics' 7.5 trillion won investment in the 2nd Bio Campus aiming to increase production capacity by 720,000 liters by 2032, ▲ Lotte Biologics' $3 billion (about 3.8859 trillion won) estimated total construction cost for the Songdo Mega Plant (Lotte Bio Campus) aiming to add 360,000 liters of production capacity by 2030, and ▲ SK Bioscience's 325.7 billion won investment planned for the Research & Process Development (R&PD) Center by 2025.

Accordingly, related ministries such as the Ministry of Trade, Industry and Energy are considering expanding the scope of benefits to include essential auxiliary facilities such as low-temperature cold storage in addition to direct manufacturing facilities, but the industry remains concerned that the government's will is still hard to see. An industry official criticized, "It seems like the original intention has been lost," adding, "Voices about pharmaceutical sovereignty emerged due to COVID-19, and although the current government has emphasized investment in the pharmaceutical and bio industries, the actual benefits felt on the ground are very limited."

Expecting 'Trickle-Down Effect' Rather Than 'Special Privileges'... "Benefits Should Be Considered If There Is Real GDP Contribution"

Regarding concerns that benefits may be concentrated in the bioindustry or large corporations, voices of rebuttal have emerged within the industry. An industry official said, "The term 'national strategic technology' itself means fostering industries to enhance national competitiveness," adding, "Apart from CDMO, Korea is not yet considered among the world's top ranks in vaccines or other pharmaceutical fields, so we hope the will to foster these areas will be made more definite." Lee Seung-gyu, vice chairman of the Korea Bio Association, explained, "If the bill passes, large companies such as CDMOs will mainly receive benefits, but it is expected that the funds secured through these benefits will naturally be redirected by companies into research and development (R&D), creating a trickle-down effect where funds circulate throughout the industry."

On the other hand, there is also an analysis that the tax revenue reduction effect will not be significant. Regarding Jeong Il-young's amendment to the Restriction of Special Taxation Act, the National Assembly Budget Office analyzed in a cost estimate report that corporate tax revenue would decrease by an average of 249.5 billion won annually over the next two years. Considering the comprehensive industrial ripple effects and employment creation effects of the bioindustry, it is argued that the ripple effects through industrial promotion may outweigh the negative impact of tax revenue reduction. Park Jae-young, a researcher at the National Assembly Research Service, stated, "Tax benefits inevitably lead to tax revenue reduction, but if it truly has a significant impact on the national industry and economy, it should be viewed selectively," adding, "If the actual contribution effect to gross domestic product (GDP) and others is meaningful, it is necessary to proactively consider providing benefits."

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