2024-07-12 09:39:39
[도전받는 K배터리] 〈Ha〉 Let’s create a ‘Korean version of the IRA’
When investing 1 trillion won each in Korea, the US, and the EU to build a battery production plant, the amount of subsidies and tax credits that companies can receive is over 3 trillion won over 5 years in the US, while in Korea it is only about 120 billion won. While advanced countries are focusing on electric vehicle batteries as a future industry and pouring incentives to build production bases, there are criticisms that Korea, which has the largest global market share (excluding China), is providing insufficient support. This has led to the construction of overseas factories, and the amount of batteries produced domestically is only 1% of global production.
On the 11th, Dong-A Ilbo analyzed the investment support policies of Korea, the US, and the EU with the Korea Chamber of Commerce and Industry and Professor Kim Woo-cheol of the Department of Taxation at Seoul City University. In the US, a total of 715 billion won can be received for one year by combining subsidies for facility investment and tax credits for production. If production is maintained for five years, the total support amount increases to 3.55 trillion won. On the other hand, Korea’s financial support was limited to 124.2 billion won, including 20 billion won in subsidies and 104.2 billion won in tax credits. The EU provides 400 billion won in tax credits.
“The U.S. provides astronomical support for the construction and production of battery factories based on the Inflation Reduction Act (IRA),” said Professor Cho Jae-pil of the Department of Energy and Chemical Engineering at Ulsan National Institute of Science and Technology (UNIST). “If Korea also wants to foster its battery ecosystem, it should create a so-called ‘Korean IRA’ and increase support for corporate investment.”
US, Cash Refunds When Battery Companies Are in Deficit… Korea Only Carries Over Tax Credits
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The three Korean battery companies account for more than 20% of the world’s battery production, including China, but only 1% of the production in Korea. This is partly due to the small domestic electric vehicle consumption market, but the weakness of the scale of investment support falling far short of that of the US and the EU has influenced corporate investment decisions. In particular, the US is attracting new investment by providing large-scale tax credits through the Inflation Reduction Act (IRA) and providing cash refunds equivalent to the tax credits to companies that are in the red.
The battery industry and academia argue that the tax credit rate should be raised from the current 15% and a “cash refund system” should be introduced to support deficit-run companies in order to foster Korea as a “mother factory” (core production base) center and foster a value chain ecosystem. Experts pointed out that “since the battery industry is still young, the investment in manufacturing facilities over the next 2-3 years is likely to determine the global battery ecosystem map. We need to quickly establish a “Korean IRA.”
● Korea 124.2 billion, US 3 trillion, EU 400 billion over 5 years
On the 11th, the Dong-A Ilbo analyzed investment support policies for battery production facilities in Korea, the US, and the EU in collaboration with the Korea Chamber of Commerce and Industry, and Professor Kim Woo-chul of Seoul City University’s Department of Taxation. The analysis found that if 1 trillion won is invested and production is maintained for 5 years, the amount of support that can be received in Korea would be 124.2 billion won, which is only 4% of that in the US (3.055 trillion won). The analysis was conducted on the assumption that each country builds a 10GWh (gigawatt-hour) battery factory, which can be loaded onto 150,000 electric vehicles per year.
In the United States, a minimum of $100 million (about 130 billion won) is directly subsidized for new investments in battery factories under the Infrastructure Investment Act (IIJA). In addition, tax credits are provided for annual production according to IRA. At $45 per kWh (kilowatt hour), 10 GWh can receive a tax credit of $450 million (about 585 billion won) per year. If a company is in the red, the tax credit is refunded in cash, giving relief to early investment companies.
In Korea, not only is the support small, but the support is also one-time, and companies in the red cannot benefit. The tax deduction rate for investment is 15%, which is lower than the US (30%) and Europe (40%). Unlike the US, land and building costs are excluded from tax deductions for total investment. Also, since tax breaks are provided only when companies make a profit and pay corporate tax, companies that are in the red, such as SK On, material companies L&F, and Kumyang, cannot receive tax deductions even if they invest in new domestic factories. However, they can postpone the deduction and receive the deduction when they make a profit later. Companies in the red can only receive subsidies of 20 billion won for local investment if they invest in facilities in local areas.
Europe also has a higher tax credit rate than Korea, although it is a one-time support. In the case of deficit companies, they can receive a 35% return on their investment by choosing direct subsidies instead of tax credits.
● Korean version of IRA needed to overcome 1% domestic production barrier
The US and Europe are the second largest electric vehicle markets after China. The supply chain for finished vehicles is also tightly structured, so there is great business synergy when investing. The downside is that various operating costs, such as labor costs and raw material procurement costs, are expensive. The battery industry says that the subsidies and tax credits in the US and Europe are more than enough to offset all costs.
According to BloombergNEF, Korea’s domestic production will be 7th in 2022, accounting for only 1% of the total battery production by country. It is expected to fall below 1% by 2027, falling out of the top 10. According to SNE Research, as of May, Korean battery companies account for 22.3% of global production, including the Chinese market. This is why some are pointing out that Korea’s domestic production base is too small compared to its manufacturing competitiveness.
However, the preparation of support measures for the domestic battery industry is very slow. Currently, a revision to the Special Tax Exceptions and Restrictions Act has been proposed in the National Assembly to increase the investment tax rate for national strategic industries such as semiconductors and batteries from the current 15% to 25% and to allow companies with losses to receive cash refunds. This is the so-called Korean version of IRA. It was automatically abolished when the 21st National Assembly ended, and although Rep. Kim Sang-hoon of the People Power Party and others reintroduced it, there is no sign of discussion due to political strife. Professor Kim Woo-cheol said, “Just as the United States supported batteries under the pretext of fostering eco-friendly industries, we need to consider a method of selecting and focusing on some industrial sectors rather than all national strategic industries, considering financial realities.”
An alternative was also suggested, saying that cash support for deficit companies should be actively considered, but if that is not possible, tax credits should be made into a kind of property right so that they can be converted into cash in the market. In a report on the Korean version of IRA last year, Planning and Finance Committee expert member Kim Kyung-ho stated, “We need to consider procedural supplements, such as allowing transfers in cases where tax credit refunds are not possible.”
This has led to the opinion that Korea should be fostered as a mother factory for the global battery industry. A battery industry insider said, “The core base of the three Korean battery companies is ultimately domestic, and they will compete overseas with advanced processes and technologies here,” adding, “It is very important for Korea to invest in domestic facilities and research and development (R&D) to gain an advantage in global competition.”
Reporter Park Hyeon-ik [email protected]
2024-07-12 09:39:39