[Editorial] Our chipmakers need taxpayers' money
Published: 03 Jan. 2023, 20:00
Updated: 03 Jan. 2023, 23:00
The Yoon Suk Yeol administration has decided to raise the tax credit rate for facility investment for strategic technologies, including semiconductors and batteries, to 15 percent from the current 8 percent. Including a temporary tax credit for an increase in such investments this year, large companies can get a maximum 25 percent deduction and small and mid-size companies up to a 35 percent deduction. The government also plans to lift tax credit rate for general investment to 3 to 12 percent from the current 1 to 10 percent while escalating the rate for new growth engines and source technologies to 6 to 18 percent from 3 to 12 percent.
The decision by the conservative government shows an about-face on its earlier position. In a meeting at the National Assembly last year, the administration insisted that the government’s tax benefits for the chip industry was not insufficient. When a semiconductor committee of the People Power Party (PPP) proposed to raise the credit rate to 20 percent, the government lowered it to 8 percent as the Ministry of Economy and Finance hoped, for fear of a reduction in tax revenue. The figure was even lower than the 10 percent proposed by the Democratic Party (DP) to lessen tax benefits for large companies. Yet the PPP stayed mum. The party’s about-face came just four days after President Yoon ordered a “consideration of an additional tax deduction.”
Such a sudden change in the government’s position is certainly disappointing. And yet, you can hardly deny the justification for tax credit for the strategic sector. Given the possibility of a severe global recession, the government must devise emergency measures to help spur corporate investment to meet the challenges.
Many countries are mobilizing all their capabilities to support their key industries after defining them as “strategic industries.” The U.S. Congress passed the Chips Act last year to hand out a whopping $52 billion to investors in the chip sector along with a 25 percent tax deduction for them. China is no exception. Beijing exempts chipmakers from mandatory income tax for up to 10 years. Liberals in Korea oppose tax benefits for big companies like Samsung Electronics and SK hynix. But semiconductors are our core strategic industry, generating 20 percent of our exports. Whenever chip prices were on a downward spiral, our economy faced a crisis. If the semiconductor industry loses competitiveness, the future of our economy darkens.
Since the government took action, the semiconductor and other strategic industries must do their share. The government expects a 3.6-trillion-won ($2.8 billion) reduction in tax revenue. Those companies must do their best to develop advanced technologies so as not to frustrate the support from the government and expectations from people. The ball will soon be in the court of the legislature.
The decision by the conservative government shows an about-face on its earlier position. In a meeting at the National Assembly last year, the administration insisted that the government’s tax benefits for the chip industry was not insufficient. When a semiconductor committee of the People Power Party (PPP) proposed to raise the credit rate to 20 percent, the government lowered it to 8 percent as the Ministry of Economy and Finance hoped, for fear of a reduction in tax revenue. The figure was even lower than the 10 percent proposed by the Democratic Party (DP) to lessen tax benefits for large companies. Yet the PPP stayed mum. The party’s about-face came just four days after President Yoon ordered a “consideration of an additional tax deduction.”
Such a sudden change in the government’s position is certainly disappointing. And yet, you can hardly deny the justification for tax credit for the strategic sector. Given the possibility of a severe global recession, the government must devise emergency measures to help spur corporate investment to meet the challenges.
Many countries are mobilizing all their capabilities to support their key industries after defining them as “strategic industries.” The U.S. Congress passed the Chips Act last year to hand out a whopping $52 billion to investors in the chip sector along with a 25 percent tax deduction for them. China is no exception. Beijing exempts chipmakers from mandatory income tax for up to 10 years. Liberals in Korea oppose tax benefits for big companies like Samsung Electronics and SK hynix. But semiconductors are our core strategic industry, generating 20 percent of our exports. Whenever chip prices were on a downward spiral, our economy faced a crisis. If the semiconductor industry loses competitiveness, the future of our economy darkens.
Since the government took action, the semiconductor and other strategic industries must do their share. The government expects a 3.6-trillion-won ($2.8 billion) reduction in tax revenue. Those companies must do their best to develop advanced technologies so as not to frustrate the support from the government and expectations from people. The ball will soon be in the court of the legislature.
with the Korea JoongAng Daily
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