Korean semiconductor investment tax credit could be increased

Economy

Published: 03 Jan. 2023, 12:56 Updated: 03 Jan. 2023, 19:17

Korean semiconductor investment tax credit could be increased

Semiconductor exbition in Seoul in October 2022. [YONHAP]

The tax credit on semiconductor investments may be increased from the current 8 percent to 15 percent for big companies, the government announced Tuesday.

For small and medium-sized enterprises (SMEs), the maximum tax credit could be raised to 25 percent from 16 percent.

If the increases are approved by the National Assembly, tax collections are likely to fall 3.6 trillion won ($2.8 billion) in 2024 and around 1.3 trillion won in 2025 and 2026.

“Semiconductors are a central industry in our economy as they accounted for 18.9 percent of exports in 2022 and 17.7 percent of facility investment,” said Finance Minister Choo Kyung-ho Tuesday. “It is a strategic asset that is directly connected with our future competitiveness, national security and very existence.”

Under the plan, an additional 10 percent tax credit will be granted for on-year increases in investment from this year.

“If so, companies will be able to get a maximum tax credit of 25 percent including the on-year increased investment and 35 percent maximum, for SMEs,” Choo said.

If the 30 to 50 percent tax credit on R&D spending is included, the tax credit will be the highest in the world, the finance minister stressed.

The proposal for more aggressive tax benefits comes less than a month after the National Assembly voted to raise tax credits by 2 percentage points from the previous 6 percent.

According to the presidential office, President Yoon Suk Yeol ordered the Finance Ministry to come up with a more aggressive plan while expressing his disappointment in what he considers weak support for Korea’s semiconductor industry.

“National strategic technologies like semiconductors are our national security asset as well as our industry’s core technology,” Yoon said on Dec. 30. “We need to come up with a rational but aggressive policy.”

While the two largest political parties wanted more aggressive tax credits for semiconductor investments — the People Power Party proposing 20 percent and the Democratic Party 10 percent — the finance minister wanted to limit the tax benefit to 8 percent as he worried about shrinking tax collections, according to local press reports.

The Finance Ministry estimates that if the 20 percent tax incentive is implemented, 2.7 trillion won less in taxes will be generated.

There have been particular concerns about Korea’s relatively weak policy support compared to other leading competitors, such as the U.S. and Taiwan.

The United States, under its Chips Act, provides a 25 percent investment tax credit for spending on semiconductor production lines and related equipment.

The Taiwan government approved a bill in November that offers a 25 percent tax credit on semiconductor R&D.

China plans to invest 187 trillion won by 2025 in its own semiconductor development.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]