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| Inside Samsung Electronics' semiconductor factory in Pyeongtaek, Gyeonggi Province / Courtesy of Samsung Electronics |
By Park Jae-hyuk
Concerns are growing over the possibility that Korean semiconductor manufacturers are losing ground against their foreign rivals, as the National Assembly passed a bill intended to limit an increase in tax benefits for domestic chipmakers.
Late last Friday, the ruling and opposition parties agreed to revise the Restriction of Special Taxation Act, in order to increase the tax credit for conglomerates' semiconductor facility investments to 8 percent from 6 percent, while maintaining the credits for medium-size enterprises and smaller firms at 8 percent and 16 percent, respectively.
Rep. Yang Hyang-ja, an independent lawmaker who leads the ruling People Power Party's special committee to enhance the competitiveness of the semiconductor industry, criticized her colleagues for "declaring the death of the Korean semiconductor industry."
"Korea's rivals are offering massive incentives to their semiconductor sectors, for the sake of their next generations. The U.S. is paying 69 trillion won ($54 billion), while China is paying 187 trillion won, the EU 59 trillion won, Japan 19 trillion won and Taiwan 4 trillion won," Yang, who worked previously as a Samsung Electronics executive, wrote on Facebook, Saturday. "It is obvious that the exodus of Korean companies and skilled workers will become a serious problem."
After President Yoon Suk-yeol was elected in March, he came up with the so-called "K-Chips Act," which was aimed to increase the tax credit to as high as 20 percent, from around 6 percent.
The main opposition Democratic Party of Korea, however, requested a 10 percent tax credit, saying that the president and the ruling party were trying to "cut taxes for the rich." The Ministry of Economy and Finance then argued that the tax credit should not be larger than 8 percent, citing that tax revenue is expected to start falling sharply in 2025.
As a result, the National Assembly eventually agreed to accept the finance ministry's request.
The Federation of Korean Industries (FKI) expressed disappointment at both the National Assembly and the government.
"The increase in tax credits for investments in high-tech facilities should be considered from a long-term perspective," the business lobby group said in a statement, Saturday. "The National Assembly and the government seem to be obsessed with concerns over falling tax revenues in the short run."
According to the FKI, the U.S. offers a 25 percent tax credit for semiconductor facility investments, while the Taiwanese government proposed a bill to increase tax credits for investments by Taiwan-headquartered semiconductor firms to 25 percent from 15 percent. Japan is also said to be planning to pay 476 billion yen ($3.6 million) to attract a TSMC factory to its Kumamoto Prefecture.
"For Korean companies to maintain their competitiveness, the National Assembly and the government should continue their discussions on increasing tax credits," said Yoo Hwan-ik, head of the FKI's corporate policy division.
The finance ministry dismissed the criticism of the smaller-than-expected tax benefits for the chip industry.
"In 2023, conglomerates will enjoy tax deductions up to 18 percent on their increased investments in semiconductor facilities, while small and medium-sized enterprises will get tax deductions up to 26 percent on their increased semiconductor facility investments," the ministry said in a press release. "In addition, tax credits up to 50 percent have been offered for investments in semiconductor R&D."
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