Limitations and Policy Recommendations for the Integrated Investment Tax Credit

Abstract

[Purpose] This study evaluates the operational status and benefit distribution of Korea’s Integrated Investment Tax Credit (IITC), introduced in 2021. By comparing the IITC with investment tax regimes in major advanced economies, it derives strategic policy reforms to optimize national tax incentives. [Methodology] Using national tax statistics, this paper analyzes the allocation of tax credits across corporate sizes, sectors, and regions. It also employs comparative international tax analysis to identify systemic limitations in the current IITC framework. [Findings] Although total tax expenditures and beneficiary firms have grown since the IITC’s inception, tax benefits remain heavily concentrated in specific firm sizes, industries, and regions, highlighting structural inequality in benefit distribution. [Implications] To address these distortions and foster innovative ventures, tax policy should introduce direct pay (refundable tax credits) and tax credit transferability. Additionally, authorities should supplement the current input— based (CAPEX) tax credit regime with output—based incentives tied to production volume or sales.