Minister Nominee Plans Korean Version of US IRA
TL/DR –
Kim Jung-kwan, the nominee for industry minister in South Korea, has proposed a production-linked tax incentive system for pivotal industries such as semiconductors and batteries. This system would take inspiration from the US Inflation Reduction Act, offering tax deductions based on production volume, which would act as subsidies linked to output. The proposed scheme is seen as a more direct benefit, compared to the current one-time tax credits of up to 25% for facility and research and development investments in sectors designated as national strategic technologies.
Kim Jung-kwan’s Proposal for Korean Industrial Policy in Response to Tech Rivalry
Lee Jae Myung’s nominee for industry minister, Kim Jung-kwan, is pushing for a bold, government-backed industrial policy. This proposal includes a production-linked tax incentive for key industries, such as semiconductors and batteries, modeled after the U.S. Inflation Reduction Act.
Korean industry needs proactive and strategic government-led policies, according to Kim. These incentives should be on par with those implemented by competing nations to mitigate trade risks. This call to action is particularly relevant for Korea’s semiconductor industry, which is under threat from U.S. and Chinese firms.
“Our global leadership in semiconductors and our domestic manufacturing base need bolstering”, Kim stated. His plan involves expanded tax and fiscal support for the sector. He also addressed the challenges facing the battery sector, including a slowdown in electric vehicle demand and Chinese competition.
Kim’s proposal includes production tax credits for key minerals and materials. These credits, based on production volume, would encourage domestic manufacturing and fortify the battery supply chain. The U.S. has already implemented a similar system to support strategic industries.
Kim’s proposed scheme would extend beyond current investment-based incentives. Companies operating in strategic sectors could receive tax credits against a portion of production costs. Potential beneficiaries of this scheme include leading chipmakers Samsung Electronics and SK hynix, with projected annual tax reductions of between 4 trillion won and 5 trillion won ($2.9 billion and $3.6 billion).
Kim also pledged to expand the government budget for renewable energy, expressing the urgency of this task in achieving carbon neutrality. He supported nuclear energy as a crucial part of a balanced energy mix and a tool for meeting greenhouse gas reduction targets.
He also proposed developing Korean-style small modular reactors and next-generation nuclear fuels, boosting Korea’s long-term technological competitiveness. At the same time, he aims to increase exports of nuclear equipment and support SMEs in the sector.
Regarding ongoing tariff negotiations with the U.S. due to conclude by Aug. 1, Kim expressed his intention to achieve a mutually beneficial outcome. He views the talks as an opportunity to develop a bilateral manufacturing cooperation roadmap, strengthening Korea’s export competitiveness in key industries.
Kim, a former Ministry of Economy and Finance official, most recently served as marketing head at Doosan Enerbility. He has divested all holdings that could present potential conflicts of interest, including shares in Doosan.
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