1.

Economic Security and Focus on Developing New Industries
 

(1)

Major Structural Transformation of Advanced Industries Driven by Innovation

This includes a plan to implement the “Future Advanced Manufacturing K-Quantum Jump Project” to secure global leadership in AI and other advanced industries. The project covers a wide range of new and advanced industries, such as advanced semiconductors/nanotechnology, future mobility, next-generation secondary batteries, renewable energy, next-generation displays, AI, quantum computing, advanced biotechnology/digital healthcare, intelligent robotics, green hydrogen, and aerospace. Furthermore, various support measures will be implemented to strengthen the industrial ecosystem, boost export and industrial competitiveness, and further stabilize supply chains, all aimed at bolstering economic security and securing future growth engines. While concentrating an investment of KRW 100 trillion in AI and other advanced strategic industries at home, bold tax benefits including individual income tax and corporate tax reductions/deductions will be granted for investments made by the general public and enterprises. Additionally, AI data centers will be designated as national strategic technology commercialization facilities, with additional tax reductions/deductions granted to corporate investors in private venture funds to promote the venture investment market.
 

(2)

Introduction of “Tax System to Promote Domestic Production in Strategic Industries”

The “Tax System to Promote Domestic Production in Strategic Industries” offers corporate tax deductions based on domestic production and sales volume, to those who domestically manufacture and sell advanced products designated as national strategic or new growth/source technologies to end consumers in Korea. It also examines measures to refund a portion of tax deductions in cash under certain conditions when necessary to protect strategic industries. This is somewhat in line with the “Tax Incentive for Promoting Domestic Production of Advanced Strategic Industries” proposed by the five major economic organizations in May, including the Korea Chamber of Commerce and Industry, ahead of the 21^st presidential election, although there appear to be differences in the specific targets and levels of support. In addition, related bills to amend the Restriction of Special Taxation Act have already been proposed by National Assembly members Jeong Il-young, Kim Tae-nyeon, and Jin Seong-jun. Therefore, if the details of the tax incentives for promoting domestic production of strategic industries are finalized, it is likely that they will be discussed together with the already proposed amendment bills as early as this year’s regular session of the National Assembly.
 

(3)

Expanded Tax Incentives for the “Contents Industry”

As the Korean cultural contents industry becomes more competitive and gains greater influence worldwide, a number of pledges have been made to increase tax incentives as part of the expanded national support system for the cultural contents industry. First, the tax deduction system for video content production cost, currently set to expire at the end of this year, will be extended, with tax deductions newly applied to music and various other performing contents and webtoon production, currently not eligible for tax deductions. Also, measures to increase tax deductions for published content will be examined, taking into account the unique nature of the publishing industry, alongside measures to further apply tax deductions to fields prescribed under the Framework Act on the Promotion of Cultural Industries as well as production, investment, and equity participation in platforms. Support is also expected to be provided for investments and equity participation between large corporations and small/medium sized enterprises (“SMEs”) in companies specializing in the cultural industry and cultural content companies. Additionally, to strengthen support for content R&D, the scope of new growth/core technology support will be expanded to include AI content, content platforms, music, publishing, characters, performances, etc. Additional Tax support for OTT content production will also be implemented. The pledge also includes supporting reimbursement-type incentives when the purpose is reinvestment in the contents industry, but the specific method and details of support are expected to be clarified during the subsequent review process.
 

2.

Establishment of Foundation for Growth and Balanced National Development
 

(1)

Compliance with Statutory Limit on National Tax Reduction/Exemption Rates

The National Finance Act stipulates that the national tax reduction/exemption rate for the current year should be maintained at no more than 0.5 percentage points above the average reduction/exemption rate of the previous three years. Meanwhile, the Special Tax Treatment Control Law includes provisions on the performance evaluation of tax expenditures and the improvement of related systems to ensure the efficient management of tax expenditures. That said, the national tax reduction/exemption rate for each year currently exceed the national tax reduction/exemption limit stipulated in the National Finance Act. In light of these circumstances, actively managed tax expenditure items that meet the substitutability and abolition standards and subject to tax exemption/reduction adjustment will be adjusted to ensure compliance with the statutory national tax reduction/exemption limit. Meanwhile, exemption requirements will be tightened for preliminary feasibility studies necessary for large-scale tax expenditures exceeding KRW 30 billion, with the results of these studies required to be reported to the National Assembly.
 

(2)

Strengthening Tax Incentives for a Stable Everyday Livelihood

At the same time as strengthening the ultimate safety net for daily livelihood, such as the National Basic Livelihood Security System, the policy promises to expand both the eligibility and payment amounts of the Earned Income Tax Credit (“EITC”) and the Child Tax Credit (“CTC”), thereby supporting the self-sufficiency of low-income working households. The income threshold for monthly rent tax deductions will also be raised to reduce the monthly rent burden on urban workers, while at the same time strengthening oversight of tax sources related to rental income. For families with multiple children, the eligible housing size and related benefits will be increased. The policy also includes the creation of new tax credits for mobile phone expenses paid by workers themselves, their children, and parents aged 65 or older. The “Good Landlord” tax credit will be made permanent, and measures such as the extension of VAT exemptions to lower dormitory/housing costs and restructuring the education tax burden borne by financial companies (to alleviate interest burdens for consumers, as education taxes are commonly paid by borrowers in financial loans) will be pursued.
 

(3)

Support for SMEs and Balanced National Development

To boost SMEs’ competitiveness through digital transformation, the budget for SME smart factories will be greatly increased while providing tax benefits and other incentives to large corporations and SMEs participating in mutually beneficial smart factory projects. Also, investment-related tax support will be expanded to prevent industrial accidents and ensure workplace safety to make SMEs safer workplaces.

Meanwhile, to support a balanced national development, companies will be encouraged to relocate their headquarters to provincial regions outside the greater Seoul metropolitan area through expanded corporate tax reductions/exemptions, prioritized housing provision for employees, etc. Additionally, improvements will be made to the “Hometown Love Donation” system, such as increasing the amount of tax deductions, improving donation procedures, and diversifying use, to strengthen local provincial finances.
 

3.

Tax Amendments to Respond to Low-Birthrate/Aging Society
 

(1)

Phased Implementation of “Our Children’s Independence Fund”

The policy pledge is a phased introduction where the government creates a fund account in the name of a child and makes regular deposits. For this fund, parents will also be allowed to make matching contributions, and tax benefits will be provided on financial income generated by the fund. To achieve the policy’s goals, withdrawals will be prohibited until the account holder becomes an adult, and the use of the funds will be restricted to purposes such as educational expenses or start-up business costs. In addition, the program will be linked with schools’ financial and economic education programs to enhance the educational effect.
 

(2)

Improved Individual Income Tax System with a Family-friendly Approach

The administration will promote the introduction of a married couple-based tax system. Through the couple-based individual income tax, various deductions—such as basic deductions for dependents, deductions for credit card spending for household expenses, and deductions for education and medical expenses—will be applied to the entire income of the married couple. Therefore, this will eliminate the need for determining which income-earner to assign such deductions, thus increasing convenience for the public. In designing the system, measures will be taken to ensure that progressive taxation does not arise from combining the couple’s incomes, and taxpayers will be allowed to choose between individual-based and couple-based taxation. In addition, the administration plans to develop a new tax system that comprehensively considers both spouses’ incomes and the number of children, and to establish a plan to revise various tax exemption and deduction items in line with the transition to this new system.
 

(3)

Enhancing Tax Benefits for Child Rearing

In consideration of the increasing living expenses that come with raising children, the administration plans to expand tax benefits based on the number of children and to broaden the scope of those eligible. First, the plan includes an increase in both the individual income tax credit rate and the deduction limit for credit card use, based to the number of children. Specifically, the administration plans to raise the credit card deduction rate by five percentage points for each child, up to a maximum of 20% per child, and increase the deduction limit by KRW 1 million. Additionally, the administration will include expenses for elementary school children’s participation in arts, music, and sports academies or facilities in the education tax credit scheme, thus strengthening tax support for working parents who may have difficulty providing direct childcare.
 

4.

Other Pledges