Lawmaker proposes cash tax credits for global businesses

Kim Sang-hoon [Courtesy of Kim Sang-hoon’s office]

A South Korean lawmaker recently proposed a tax reform that offers global businesses tax credits in cash to catch up with countries such as the United States and Japan, which have opted for cash payments as part of their tax incentives strategy to attract investments in manufacturing and local production.

The proposed reform came as Ruling People Power Party (PPP) Representative Kim Sang-hoon held a joint conference on the introduction of the Inflation Reduction Act (IRA) Direct Pay to strengthen South Korea’s tech industry, in collaboration with the Korea International Trade Association (KITA) and the Korea Industry Alliance Forum on Tuesday.

“In the United States, tax-exempt entities receive a cash grant as tax credits for investments through the IRA, and Japan has a system that refunds up to 50 percent of investments in cash to attract high-tech industries like semiconductors,” according to Kim, who heads Strategy and Finance Committee of the National Assembly. “Unlike our tech rivals, Korea defers corporate tax reductions via tax credits until six to seven years after the initial investment, such as the construction of a factory, waiting for operating profits to be generated and corporate taxes to be paid.”

“Offering direct pay for investment can appeal to more companies by reducing the uncertainty they face when making global investments,” Kim added.

The lawmaker proposed a bill designed to offer cash-based tax credits to business entities, allowing them to trade such payments. The country’s trade authorities, including the Korea Chamber of Commerce and Industry and the Federation of Korean Industries (FKI), are said to support the bill.

During the conference, Kim Woo-cheol, a professor at the University of Seoul, highlighted that South Korea’s current tax credit system has not been effective in offering actual advantages to businesses at times when they face losses or diminished profits, urging for the adoption of a refundable tax credit system such as those in the United States, European Union, and China.