[Shaking K-Automotive]④ Lee Jaemyung's Domestic Production Promotion Tax System... Legislative Status

Industries and Items to Be Included in the Government's July Proposal Draw Attention
14 Special Taxation Act Amendments Proposed, Under Discussion
No Major Disagreements Between Parties, But Concerns Over Overlapping Benefits Remain

"I understand that Japan and the United States have already introduced similar systems. In order to encourage domestic production and protect domestic industries, it is necessary to introduce new deduction and tax credit systems. Perhaps it would be appropriate to call it a 'domestic production promotion tax system.'

President Lee Jae-myung made these remarks during his visit to Hyundai Motor Company's Asan Plant in February last year, when he was serving as the leader of the Democratic Party of Korea. Since then, we have examined the current status of the legislative process for the domestic production promotion tax system.

At that time, Lee Jae-myung, then leader of the Democratic Party of Korea, visited Hyundai Motor Company's Asan Plant in Asan, Chungnam Province on February 20 last year, taking a commemorative photo in front of the Ioniq 9 car with President Lee Dong-seok and other Hyundai Motor officials. Photo by Yonhap News Agency

According to the National Assembly's Bill Information System on May 19, a total of 14 partial amendments to the Restriction of Special Taxation Act have been proposed in the 22nd National Assembly to introduce the domestic production promotion tax system. The key content is to promote domestic production and stabilize supply chains by allowing companies to deduct income tax or corporate tax in proportion to the sales volume of products manufactured and sold in Korea.

The amendment to the Restriction of Special Taxation Act, sponsored by Kim Young-jin, a member of the Democratic Party of Korea, stipulates that "for residents who produce products domestically and sell them to final domestic consumers, the tax amount reduced for each item will be deducted from income tax or corporate tax." The bill proposed by Choi Eun-seok of the People Power Party also calls for deductions from income tax or corporate tax, but adds the requirement that the benefit should not be limited to specific companies, and instead should spread to the entire production ecosystem, by requiring a certain proportion of domestic parts, materials, and equipment usage.

These bills commonly focus on the need to directly link tax incentives to 'production' activities, since current tax benefits for corporate activities are centered on investment and employment. Bills have been introduced by both ruling and opposition lawmakers, and are currently being discussed in the Tax Subcommittee of the Planning and Finance Committee. Issues such as defining the method and scope of support remain to be determined. In its Economic Growth Strategy announced in January, the government stated its intention to introduce a domestic production promotion tax system, specifying that the details regarding eligible recipients and support methods will be included in the tax law amendment bill to be submitted in July.

Deputy Prime Minister and Minister of Economy and Finance Koo Yoon-chul is speaking at the K-Chosun Future Vision Meeting hosted by President Lee Jae-myung on the 13th at Hotel Hyundai By Lahan Ulsan. Photo by Yonhap News

However, it is reported that there is a cautious stance regarding potential overlaps with the existing investment tax credit should the production tax system be introduced. This is due to concerns that overlapping tax benefits could lead to a tax revenue shortfall. In addition, for loss-making companies that are unable to generate profits after initial investment, the government is considering separate fiscal support measures.

At the "K-Chosun Future Vision Meeting" on the 13th, Deputy Prime Minister and Minister of Economy and Finance Koo Yoon-chul stated, "For the domestic production promotion tax system, production in Korea is essential, but if companies do not generate profits in the early stages, tax reductions are ineffective. Therefore, we are discussing with the Ministry of Economy and Budget to provide subsidies at the initial stage, if support is to be given."

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