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[Asia Economy Reporter Hwang Yoon-joo] There have been criticisms that the domestic tax system is disconnected from the corporate field and often does not help expand businesses in new industries such as semiconductors and hydrogen. Eight out of ten domestic companies cited tax support for new growth technologies as the most urgent issue.

The Korea Chamber of Commerce and Industry (KCCI) recently announced on the 15th the results of a survey on the "Top 10 Tax Systems Disconnected from the Corporate Field," conducted on 336 companies (110 large companies and 226 small and medium-sized enterprises).

Companies first responded that the tax system does not keep pace with the speed of technological advancement. 81.3% of the respondent companies pointed out the problem that new growth technologies are not immediately reflected in the enforcement decree, resulting in a lack of tax support.

For example, although a transition to a hydrogen economy for carbon neutrality is necessary, hydrogen new technologies such as green hydrogen have not yet been reflected as new growth technologies. In the case of next-generation memory semiconductors, they are eligible for tax credits as new growth technologies, but the latest technology among next-generation memory semiconductors, intelligent semiconductors, is not included. This creates a reverse discrimination where the latest technologies do not receive tax support.

Unlike Korea, overseas countries recognize new technologies eligible for deductions more broadly and apply tax support for R&D activities more flexibly. For instance, China changed its R&D preferential support for "high-tech industries" to a "negative regulation" system in 2015, allowing all except those not meeting criteria, such as tobacco and real estate industries. Most industrial technologies, except for some sectors, are recognized as high-tech.

Also, compartmentalized tax support designed to prevent some loopholes sometimes acts as a roadblock to utilizing the system. For example, to receive new growth tax credits, dedicated personnel for new growth R&D are required. However, 70.5% of companies agreed with the concern that it is difficult for small and medium-sized enterprises to use this because the same personnel often handle both new growth R&D and general R&D.

In contrast, countries like the U.S. and Canada do not require conditions such as dedicated personnel for new growth R&D but verify actual R&D activities and calculate research and development costs based on the time the personnel are engaged.

A KCCI official stated, "Last year, about 34,000 companies applied for general R&D tax support, with an application rate of 99.4%, whereas only 197 companies, or 0.6%, applied for new growth R&D tax support, which is very low," and added, "It should be promptly revised to align with the system's purpose of increasing new growth investment."

Some companies also complained about tax law regulations not found in other countries. In the case of the inheritance tax deduction for family businesses, the same industry must be maintained within the medium classification for seven years, and 80% of business assets must be maintained. 64.3% of respondent companies pointed out that these requirements could be obstacles to flexibly responding to changes in the industrial environment. Korea is the only country that restricts industry changes after business inheritance.

Respondent companies considered "collecting and strengthening communication of field opinions related to tax law" (98.5%) as the most urgent task for improving tax systems disconnected from the corporate field. This was followed by "researching and revising tax systems that are disadvantageous compared to competing countries" (95.2%), "designing systems flexibly while strengthening penalties for tax evasion" (93.8%), and "changing tax support targets from a positive to a negative approach" (78.6%).

This content was produced with the assistance of AI translation services.