[Edaily Reporter JAEMIN SONG ] Support measures for domestic production tax credits—a long-standing goal of the domestic battery industry—have taken their first step. This system provides tax breaks based on the volume of products produced and sold domestically to bolster the domestic production base. However, as specific eligible items and production recognition criteria have not yet been determined, the actual effectiveness of the support is expected to hinge on future legislative action by the National Assembly and the design of enforcement decrees.

According to industry sources on the 17th, the government has established a domestic production tax credit through its 2026 tax reform plan and included rechargeable batteries among the target industries, alongside semiconductors, solar and wind power generation, core materials, and artificial intelligence (AI) robot components. The program is scheduled to operate for 10 years, from next year through the end of 2036.

The domestic production tax credit is a system in which a standard deduction amount per item is multiplied by the volume of products directly produced and sold domestically, and the resulting amount is deducted from income tax or corporate tax. Similar to the Advanced Manufacturing Production Credit (AMPC) under the U.S. Inflation Reduction Act (IRA), it provides benefits proportional to actual production volume rather than facility investment amounts.

Differential support based on production region will also be provided. The regional coefficient for the Seoul Metropolitan Area is set at 1, while metropolitan cities outside the Seoul Metropolitan Area will be assigned a coefficient of 1.1, other non-metropolitan areas 1.3, and preferential regions—such as areas with declining populations—will be assigned a maximum coefficient of 1.5. As major battery production bases are located outside the Seoul Metropolitan Area, the three major battery companies—which are pushing to expand domestic production—are also expected to benefit.

Benefits from Production Expansion Outside the Capital Region… Direct Rebates Remain a Challenge

LG Energy Solution is establishing a production line for lithium iron phosphate (LFP) batteries for energy storage systems (ESS) with an annual capacity of 1 gigawatt-hour (GWh) at its Ochang Energy Plant in Cheongju, North Chungcheong Province. The company plans to begin full-scale operations next year and then gradually expand production capacity in line with market demand.

SAMSUNG SDI CO.,LTD. is expanding its mass production capabilities by establishing an LFP mother line at its Ulsan plant, a major production hub for NCA (nickel-cobalt-aluminum)-based prismatic batteries. SK On is converting part of the electric vehicle battery production line at its Plant 2 in Seo San Co. Ltd., South Chungcheong Province, to establish an annual 3 GWh production system for LFP batteries used in ESS.

As the three battery companies expand their domestic investments beyond ternary batteries for electric vehicles to include ESS, LFP, and all-solid-state batteries, attention is focused on whether these products will be included in the list of eligible items for support. Initiatives promoted by the government—such as the construction of an AI-powered power distribution network, the ESS central contract market, and the three major megaprojects—are also expected to align with the production tax credit program.

However, details such as eligible items, core processes, and the proportion of domestic expenditures within eligible production costs will be specified in future enforcement decrees. The extent to which ESS, LFP, and next-generation batteries are recognized will determine the scale of benefits for each company.

Another challenge is that the direct refund system and the transfer of tax credits to third parties were omitted from this reform plan. This is because companies operating at a loss or with low corporate tax liabilities will find it difficult to immediately take advantage of the benefits, even if the credit rate is high.

Earlier, Namho Kim, Senior Vice President of LG Energy Solution, requested the introduction of a direct refund system at a forum held at the National Assembly last month, stating, “Since we are currently a company operating at a loss, we are unable to receive any practical benefits no matter how high the tax credit rate is.” SAMSUNG SDI CO.,LTD. also proposed that tax credits for research and development (R&D) and facility investments should be payable directly or transferable to third parties.

An industry official noted, “It is significant that the introduction of the domestic production tax credit has established a framework to support domestic battery production,” but added, “For this to actually lead to expanded investment, the enforcement decree must broadly define eligible items and production standards, and complementary measures must be discussed to ensure that loss-making companies can also take advantage of the benefits.”