Finance Ministry to expand corporate tax incentives, funnel cash to facilities, R&D

The Korean government is set to expand corporate tax incentives to attract investment for facilities and research and development (R&D) in a bid to vitalize the domestic economy as high interest rates restrict corporate investment.

Finance Minister Choi Sang-mok, center, speaks during a briefing held at the government complex in central Seoul on Thursday. [NEWS1]

The Korean government is set to expand corporate tax incentives to attract investment for facilities and research and development (R&D) in a bid to vitalize the domestic economy as high interest rates restrict corporate investment.

"The overall improvement is expected to continue through this year, but it will take some time before people start to feel that due to different speed of recovery from pressures piled up by high inflation and interest rates,” Finance Minister Choi Sang-mok said in a briefing at the government complex in central Seoul on Thursday.

"Korea's economy is showing improved exports, which is being followed by a gradual improvement in domestic demand," Choi said, adding that domestic demand will be weaker than exports in the first half of the year.

To address the expected dip in demand, the government will extend the temporary investment tax credit for facility investment through December 2024, which expired at the end of last year, and raise tax credit ratio for the R&D investment, according to a Ministry of Finance announcement regarding its economic policy for 2024. The tax credit ratio for corporate R&D will be raised by 10 percentage points of the amount of investment increased.

The government will also finance at least 150 trillion won ($115 billion) over the next three years to foster the development of five key technologies: chips, reusable batteries, bio, future mobility and hydrogen.

The government also aims to attract a record $35 billion in foreign investment by securing large overseas projects and improving regulations that currently hinder investment.

To reach this year's $700 billion export milestone, the government aims to win $57 billion of business deals overseas and finance a record 35.5 billion won for trades, up from 10 trillion won from a year earlier.

The ministry will also execute 85 trillion won worth of liquidity programs in a bid to usher in a soft landing for a property market facing risks related to project financing (PF) loans.

Concerns escalated after Taeyoung Engineering & Construction, a mid-size Korean builder, applied for a debt restructuring program in late December due to a liquidity shortage over real estate PF loans.

The state-run Korea Land and Housing Corporation (LH) will review plans to acquire and normalize real estate projects that temporarily face liquidity problems. LH may jump in directly on the projects or sell them to other developers.

The total balance of outstanding PF loans reached 134.3 trillion won as of the third quarter last year. The number was just 112.9 trillion won at the end of 2020.

The government expects Korea's economy to grow 2.2 percent and inflation to rise 2.6 percent this year, compared to 1.4 percent economic growth and a 3.6 percent inflation hike last year.

"Growth is expected due to an improved export, helped by global trades and recovery of chip sector,” Choi said.

BY JIN MIN-JI [jin.minji@joongang.co.kr]