Korea Business Federation welcomes domestic production tax credit in 2026 tax reform

The Korea Business Federation welcomed the government's decision to introduce a domestic production tax credit in its 2026 tax reform package, saying the measure would strengthen the country's production base and boost the competitiveness of advanced industries.

Lee Sang-ho, the federation's head of economic affairs, said in a statement Monday that the reform package "is expected to help invigorate the economy and expand future growth engines at a time when domestic and external challenges persist, including geopolitical risks and slowing growth potential."

The domestic production tax credit allows companies to deduct from their corporate or income tax a sum calculated by multiplying the volume of goods produced and sold domestically by a unit price set for each product category. For example, if a company secures 10 billion won ($6.98 million) in tax credits through domestic production, a firm that would otherwise owe 15 billion won in corporate tax would need to pay only 5 billion won.

Lee said the introduction of the domestic production tax credit and the expansion of the scope of nationally strategic technologies "will serve as a foundation for solidifying the domestic production base and enhancing advanced technology competitiveness," adding that tax support for business restructuring "is also expected to contribute to revitalizing the petrochemical industry."

However, Lee flagged that the eligibility requirements for the domestic production tax credit are strict enough to make it difficult for companies to use, calling for further review. He also said a narrowing of the scope of the integrated employment tax credit could negatively affect the supply of quality jobs sought by young workers, and that the measure needs to be improved during the legislative process.