As the market for Chinese electric vehicles intensifies in South Korea, efforts to enhance the competitiveness of domestically produced electric vehicles through tax incentives are lagging. A bill proposing tax benefits for domestic production has been introduced in the National Assembly, but the scope of support remains undecided, and there is a possibility that export volumes could be excluded. Concerns are rising within the automotive industry that the tax incentives may end up being ineffective.
On November 11, the National Assembly's Finance and Economy Committee held a meeting to review the proposed tax law amendments. The automotive industry is particularly focused on whether tax credits for domestically produced electric vehicles will be implemented and what the extent of those benefits will be. With major countries like the United States and China actively promoting their electric vehicle industries, tax support for domestic production facilities remains a legislative challenge.
The proposed bills in the National Assembly differ in terms of eligibility and calculation methods for tax credits. The government’s proposal includes the establishment of a domestic production tax credit based on the income tax or corporate tax proportional to the sales of eligible items produced and sold domestically. In contrast, a revised bill introduced by Democratic Party lawmaker Lee Un-ju includes provisions to extend tax credits to vehicles produced domestically and exported.
If tax benefits are only provided for vehicles sold domestically, electric vehicles intended for export would be excluded from support. Hyundai Motor Group has set a goal to increase its annual domestic electric vehicle production to 1.51 million units by 2030, with 61% of that total, or 920,000 units, earmarked for export. Analysts warn that if tax credits are limited to domestic sales, the support's effectiveness for export-oriented production facilities could be significantly restricted.
Additionally, industry representatives are calling for the introduction of direct refund systems that would allow companies to benefit even if they do not generate sufficient taxable income, alongside tax support linked to production performance. They argue that given the ongoing large-scale investments in facilities for electric vehicle transition, relying solely on corporate tax reductions may limit the effectiveness of the support.
An industry official stated, "Since domestically produced electric vehicles are supplied not only to the domestic market but also to overseas markets, excluding export volumes will inevitably limit the effectiveness of tax support. To enhance the competitiveness of domestic factories, support that considers overall production performance is necessary."
* This article has been translated by AI.
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