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Gov't to offer highest tax credits to new growth industries

All News 14:30 April 28, 2016

By Kim Boram

SEJONG, April 28 (Yonhap) -- The South Korean government said Thursday that it will offer the highest tax credits available for research and development investment in new selected industries as part of its efforts to sophisticate the country's industrial structure to higher value-added lines and shift its policy focus to the service sector.

According to the plan endorsed by an economy-related ministers' meeting held in Seoul, companies that make R&D investment in new future industries such as Internet of Things, smart car and bio-medical technologies will be granted a 30-percent tax credit, the highest rate that the local tax code allows, up from the current 20 percent.

The government will also offer tax credits of up to 10 percent for facility investment into those areas.

The details of new industries subject to the government aid will be announced in July.

The service sector will receive higher tax rewards in accordance with the number of employees, while the culture content industry will be provided with tax credits on production and R&D costs.

"The government will carry out industrial reform and strengthen financial support for potential future industries in a bid to increase the country's job-creating capability and transform the manufacturing-oriented industry," the Ministry of Strategy and Finance said in a statement.

The ministry said the plan uses tax rewards as a carrot to have businesses go into action.

"The government is trying to encourage companies to seek their future business on their own and make investment in advance," Deputy Finance Minister Lee Chan-woo said in a press briefing in Sejong.

"The government role is to make them move through tax benefits. Companies will increase spending on R&D and facility investment as tax incentives raise their investment profit margin."

The plan also includes measures to create a 1 trillion won fund to share high risks of pouring massive money into speculative technologies.

Government-run corporations will pay 500 billion won to the fund, with the private sector bearing the rest, according to the finance ministry.

The Korea Development Bank (KDB) and other policy lenders will also set up an 80 trillion won fund to extend guaranteed loans to firms engaging in the information and communication technology convergence sector and culture content area.

"Companies are reluctant to go deeper into untouched business areas due to high risks and low profit estimates," said the deputy finance minister. "The funds are designed to reduce the risks in order to help them become less exposed to such investment risks."

In line with the nationwide corporate restructuring drive, the ministry said it will provide wider financial support to those who complete their planned self-rescue measures.

Five industries -- shipbuilding, shipping, construction steelmaking, chemicals and petroleum -- were picked for the government-led intensive overhaul as they have been struggling with waning global demand and falling commodity prices.

The ministry will urge the troubled companies to push ahead with downsizing and promote cost-efficiency in advance and lighten tax burdens of troubling companies undergoing harsh restructuring.

It will also draw up measures to expand the capital of policy lenders, usually the biggest creditor or shareholder of the debt-ridden companies, to carry out the restructuring project.

"Corporate restructuring must be led by creditors," said Lee, the deputy finance minister. "The government's role is to monitor the restructuring process and its economic impact, and take backup action like capital increase."

Earlier this week, the top financial regulator reaffirmed that the corporate restructuring should be spearheaded by firms and their creditors, with the government to come up with supportive measures to deal with massive layoffs.


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