Lawmakers from both the ruling and opposition parties have called for including electric vehicles among the industries eligible for South Korea's domestic production tax credit, arguing that the country must strengthen the competitiveness of its EV sector and counter Chinese carmakers. Rep. Lee Eon-ju of the Democratic Party of Korea held a policy forum at the National Assembly on the 16th on introducing a Korean version of the U.S. Inflation Reduction Act, calling on the government to change course. "We need to build a Korean IRA starting from the EV manufacturing stage to protect our technological sovereignty, jobs and economic security," Lee said. Rep. Yoon Han-hong of the People Power Party last month sponsored a bill to revise the Restriction of Special Taxation Act to add electric vehicles and small modular reactors to the list of industries covered by a Korean IRA. It is encouraging that lawmakers from both parties have converged on the idea of an EV tax credit.
In its 2026 tax revision plan announced recently, the government designated six sectors for the tax credit — including semiconductors, solar power, secondary batteries and artificial intelligence — but left out electric vehicles. It cited overlap with existing purchase subsidies, the risk of trade friction and the cost to tax revenues. Yet given that the United States, China and Japan are running subsidies and tax credits in parallel and committing large sums of public money, the government's assessment is far too complacent. It is a shortsighted view that ignores both the intensifying global contest for dominance in electric vehicles and the conditions facing domestic companies.
The most pressing threat is China's rise in electric vehicles. Of the roughly 200,000 electric passenger cars newly registered in South Korea from January to July this year, 62,456 were made in China, or 39% of the total. The Chinese share jumped 8.2 percentage points in a single year. The global market is no different. In the first half of this year, Chinese companies accounted for 62% of the 8.85 million electric vehicles sold worldwide. Six of the top 10 sellers were Chinese. That is why the United States and the European Union are barring rerouted exports by companies backed by Chinese capital and raising tariffs on Chinese-made electric vehicles.
An EV tax credit should be introduced quickly, not merely to fend off the Chinese offensive but to build up the competitiveness of Korean companies and the wider industrial ecosystem. What matters is policy coordination and the speed of legislation. Momentum has grown now that Lee Hyoung-il, the nominee for deputy prime minister and minister of economy and finance, told his confirmation hearing that he would "gather views, taking into account employment in the auto industry and the principles of the tax system." In the race for advanced industries, speed is everything. We look to the new economic team for a shift in policy and to both parties for prompt legislation.
