The game industry called for the introduction of a tax credit for game production costs. It said this runs counter to fairness with film and webtoons. Fiscal authorities urged caution, citing the possibility of overlapping with an existing research and development (R&D) tax credit.

At a forum on March 10 titled "Policy debate on boosting the global competitiveness of the game industry through tax support" at Seminar Room 1 of the National Assembly Members' Office Building, a key issue was whether games should be treated as a separate category eligible for a production-cost tax credit.

The forum was hosted by the office of People Power Party lawmaker Park Seong-hoon (박성훈) and organised by the Korea Game Industry Association (KGAMES). Attendees included division directors in charge from the Ministry of Economy and Finance and the Ministry of Culture, Sports and Tourism, and industry officials.

R&D tax credit threshold is high... A production-cost-focused tax credit is needed

Song Jin (송진), head of the Content Industry Policy Research Center at the Korea Creative Content Agency, who presented at the forum, said K-content exports were $14.1 billion, already surpassing secondary batteries at $8.2 billion and home appliances at $8.0 billion. He said games accounted for 60.4 percent of content exports. Song said complex challenges have emerged, including stalled growth after the end of the pandemic, rising production costs and intensifying global competitive pressure including from China, and stressed the need to expand policy support.

Limits of current domestic tax support were also presented in figures. Only about 23 percent of game companies applied for the R&D tax credit, a large gap from the average for technology manufacturing at more than 50 percent. Song pointed out that design, character development and scenario composition in game planning and development are hard to have recognised as R&D, and outsourced labour costs are excluded from deductible items.

Major countries including the United States, Canada and Britain already run tax credits for game production costs separately from R&D tax credits, with credit rates at about 25 to 37.5 percent.

The presentation also included estimates of economic ripple effects if introduced. An analysis of 539 game companies estimated that over 5 years a production-cost tax credit would lead to additional investment of about 159.93 billion won, an induced production value of 225.5 billion won and an increase of 15,513 employed people. The benefit-cost ratio was presented as 1.26, with an analysis saying social benefits would be greater than the fall in tax revenue.

In a discussion, Hwang Wook (황욱), chief financial officer at Neowiz, said games now compete not with other game companies but with all entertainment including OTT, YouTube, webtoons and music. He said it breaks competitive neutrality and creates an "uneven playing field" that film and webtoons have production-cost tax credits while games do not.

Hwang said small developers in Europe can, based on tax benefits, try their next work even if they fail, while Korean developers fear there is no next chance if they do not score a big success this time. He stressed that a tax credit is needed as a buffer to keep trying big projects in the era of AI transition.

Won Jae-ho (원재호), CEO of small developer Ankernode, 2 and a half years after its founding, conveyed the reality for small game companies. Won said game development, even if halted, leaves only chunks of code and pieces of drawings, with no asset value and no ability to leverage finance. He said he saw a peer CEO who shut down after investing more than 2 billion won and still falling short by 400 to 500 million won, adding it would have been different if there had been a refund from a tax credit.

Chae Jong-seong (채종성), head of the tax response team at law firm Yulchon, stressed that the substance of a production-cost tax credit is support for youth employment, and that an R&D tax credit and a production-cost tax credit are different in nature and can be operated in parallel. Chae added that the tax credit for operating esports tournaments, set to sunset this year, also needs to be extended.

Finance ministry warns of duplicate deductions... Culture ministry says on-site uptake is in the 2 percent range

Cho Moon-gyun (조문균), a director in charge of tax incentive systems at the Ministry of Economy and Finance, set out a cautious stance. Cho said game content production technology is designated as a new growth and core technology, so an R&D tax credit rate of up to 40 percent applies, about 60 times higher than in film and webtoons. He said adding a production-cost tax credit would raise concerns about duplicate deductions for the same costs. Cho also mentioned the government set 75 billion won as the 2026 budget for fostering the game industry.

Choi Jae-hwan (최재환), a director in charge at the Ministry of Culture, Sports and Tourism's game content industry division, countered that even if the current R&D tax credit exists as a system, the share actually used in the field is extremely low. Choi said among about 1,300 game production companies, only 2.1 percent receive R&D tax credit benefits. He said smaller game companies find it difficult to meet requirements such as physical separation for dedicated research institutes, so the high level of R&D tax credits is not the reality in the field.

Choi also stressed that unlike direct project-cost support, a tax credit supports production costs that companies have already spent. He said the 75 billion won budget is executed in the form of project costs and therefore entails administrative costs as well as conditions and the burden of settlement, while a tax credit directly supports what game companies are making and involves no losses.

Park said there is bipartisan consensus on tax support for games and that he would refine industry opinions and continue discussions with fiscal authorities.