The Korea Herald


[Editorial] Long-awaited cooperation

Ruling, opposition parties agree to raise tax credits for semiconductor investment

By Korea Herald

Published : March 22, 2023 - 05:30

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A bill that increases tax credits for semiconductor facility investment is expected to be approved by the National Assembly this month.

Under the bill, tax credits will rise from the current 8 percent to 15 percent for semiconductor facility investment by large companies and from 16 percent to 25 percent for that by small and medium-sized companies.

The majority opposition Democratic Party of Korea initially opposed the government-proposed 15 percent tax credit for large companies. It argued that such tax credits favor chaebol, South Korea’s biggest industrial conglomerates such as Samsung and SK.

Then the party recently made a U-turn to accept the government bill. It is said to have faced heavy pressure from the public, who were critical of its opposition to support for an important Korean industry.

The rival parties went a step further to give the same tax credits for investments in hydrogen technology and new mobility industries.

The bill is expected to pass the Strategy and Finance Committee on Wednesday and the Assembly plenary session on March 30.

It will also give momentum to Samsung Electronics’ recently unveiled plan to invest 300 trillion won ($230 billion) into a massive chip cluster in Yongin, Gyeonggi Province, by 2042.

The current special law to support the domestic semiconductor industry, dubbed the “K-Chips Act” in Korea -- inspired by the US CHIPS and Science Act -- was approved by the National Assembly late last year. At that time, the ruling People Power Party sought to raise investment tax credits from 6 percent to 20 percent, while the Democratic Party stuck to 10 percent.

Then, in the middle of a tug-of-war between 10 percent and 20 percent, the Ministry of Economy and Finance proposed a 8 percent level for fear of a decrease in tax revenue. The government offer looked absurd from the ruling party’s perspective, but the parties eventually agreed to the offer.

Then, the criticisms poured in. The US CHIPS and Science Act gives chipmakers a 25 percent investment tax credit. A Taiwanese law allows local chipmakers to turn up to 25 percent of their annual R&D expenses into tax credits. Eight percent was determined to be far less competitive. Yoon ordered a review of the special law, and the Democratic Party reversed its position.

It is a relief that the opposition party agreed, though belatedly, to an upward revision of investment tax credits for strategic industries including semiconductors.

The Democratic Party has been criticized for pushing through anti-business, pro-labor bills. It is good to see the party change its position toward supporting strategic industries and raising corporate competitiveness. If the parties can cooperate at least in the field of economy, it will be welcome news to everyone.

The rare agreement between the rival parties, who have been seemingly locked in perpetual conflict since Yoon Suk Yeol took office, should become an occasion to expedite the processing of a huge backlog of public livelihood and economy bills, among others. At the least, they must proceed promptly with legislation that would help the financially struggling working class and businesses.

Chipmakers are said to want a sufficient and stable supply of talented employees as well as receiving investment tax credits. The Democratic Party opposes increasing the number of semiconductor majors in universities in and around the capital. Its argument for balanced regional growth has a point, but the current situation is far from easygoing. Competition among chipmakers -- and among governments -- is fiercer than ever.

Semiconductors accounted for 18.9 percent of South Korea’s exports last year. The country is an export-driven economy so chips are a major strategic industry. But its semiconductor exports plunged 43 percent on-year in February. South Korea's trade balance has already been in deficit for 12 successive months from March last year. It is urgent to help the semiconductor industry recover.

Competitiveness of the industry leads directly to the competitiveness of the state. Total state support is essential. Ruling and opposition parties must cooperate to keep Korean chipmakers on top of the global market.