South Korea's rival parties are pushing a series of bills to include electric vehicles in a domestic production tax credit, dubbed the country's version of the U.S. Inflation Reduction Act. The aim is to support the EV manufacturing base and protect the competitiveness of not only the mobility industry but also upstream sectors such as batteries and parts, as Chinese-made EVs step up their push into the domestic market. With the government also leaving open the possibility of expanding the scope of the credit, debate over whether to include EVs is expected to intensify as the National Assembly reviews the tax reform package.
Rep. Lee Eon-ju of the Democratic Party of Korea, who heads the party's future economic growth strategy committee, held a policy forum on introducing a Korean version of the IRA at the National Assembly members' office building on the 16th. "If the EV industry falters, the manufacturing ecosystem could collapse in a chain reaction — from steel, batteries and parts to robotics and physical artificial intelligence," Lee said. "A production tax credit must be introduced as soon as possible so that domestic production and research and development bases can be maintained."
Under the government's tax reform package announced last month, a domestic production tax credit will be created starting next year, cutting taxes in proportion to output for six strategic industry items produced in Korea, including semiconductors, secondary batteries and AI robot components. EVs were excluded, however, on grounds such as overlapping support with purchase subsidies. Industry officials worry that the current purchase subsidy system, which does not distinguish where a vehicle is made, could instead weaken the domestic EV production base. Tesla and BYD EVs made in China have been increasing sales in Korea on the back of subsidies, while domestic automakers' EV output has been shrinking.
Participants at the forum agreed that substantive incentives are needed to encourage domestic production. Oh Moon-sung, chairman of the Korea Tax Policy Association, said, "In the case of EVs, a lot of production has moved overseas because companies have judged that manufacturing abroad is more advantageous than doing so at home." He added, "As overseas production rises, domestic employment, value creation and demand for materials and parts inevitably decline as well." Cho Jae-han, head of the Center for Industrial Future Policy at the Korea Institute for Industrial Economics and Trade, also stressed tax support to promote domestic EV production, saying, "A weakening auto production base affects exports, manufacturing and employment all at once."
Legislative competition to include EVs in the domestic production tax credit is intensifying in the National Assembly. An amendment to the Restriction of Special Taxation Act, introduced by Lee on the 4th, would allow income tax or corporate tax deductions based on the volume of domestically produced EVs sold in Korea or exported. It would provide tax benefits of up to 4 million won ($2,900) per EV. Rep. Yoon Han-hong of the People Power Party also introduced a bill on Aug. 27 that would include EVs and small modular reactors in the domestic production tax credit.
With the government also leaving open the possibility of supporting EVs, debate in the National Assembly is expected to gain momentum. Lee Hyoung-il, nominee for deputy prime minister and minister of economy and finance, said at a confirmation hearing on the 15th that the government would "gather opinions from the field and the industry from various angles" regarding the inclusion of EVs in the credit. Lim Chae-wook, director of the automobile division at the Ministry of Trade and Industry, who attended the forum, said, "In the solar industry, the share held by Chinese products has surged from 38% in the past to 95% now." He added, "We will work to ensure that EVs do not end up in the same situation as solar."
