Yoon, 20% Increase in Semiconductor Investment Tax Credit Could Reduce Annual Tax Revenue by 5 Trillion Won... Ministry of Economy and Finance's 'Dilemma'

Expectations for Expanded Investment Capacity Due to Tax Cuts
Ministry of Economy and Finance Expresses Concerns Over Cross-Industry Fairness and Tax Revenue Impact

SK Group Chairman Chey Tae-won visited SK Hynix Semiconductor in Icheon, Gyeonggi Province, on the 22nd. Wearing a cleanroom suit, he inspected wafer products on the production line. From left to right: Ha Sung-min, President of SK Telecom; Chairman Chey Tae-won; Kwon Oh-chul, President of SK Hynix.

[Asia Economy Sejong=Reporter Kwon Haeyoung] As the new government considers raising the tax credit rate for facility investments as part of semiconductor support measures selected as a national agenda, it is estimated that the annual tax revenue reduction due to this could reach an average of 5 trillion won. This means that the private sector's investment capacity could increase accordingly. However, the Ministry of Economy and Finance, which oversees tax policy, is deeply concerned about issues such as fairness with other industries due to support for the semiconductor industry and the deterioration of fiscal soundness caused by short-term tax revenue shocks.

According to the Ministry of Trade, Industry and Energy on the 28th, domestic semiconductor companies such as Samsung Electronics and SK Hynix plan to invest more than 510 trillion won by 2030. Most of this is expected to be invested in semiconductor manufacturing facilities. Currently, the tax credit rate for facility investments by large corporations is 10%, but if it is raised to 20%, it is calculated that about 50 trillion won in tax revenue will be additionally reduced over the next 10 years, and if raised to 25%, the reduction will exceed 75 trillion won.

The market, centered on the semiconductor industry, argues that the government should provide unprecedented tax benefits amid supply chain crises and intensifying global competition. The logic is that tax reductions will expand investment and employment capacity, drive economic growth, and thereby expand the mid- to long-term tax revenue base.

However, the Ministry of Economy and Finance acknowledges the need to support the semiconductor industry to boost private sector vitality but is taking a cautious stance due to concerns about fairness with other industries, tax revenue shocks, and resulting fiscal soundness issues.

Based on the 'K-Semiconductor Strategy' announced by the Ministry of Trade, Industry and Energy last year, a simple calculation shows that if the semiconductor facility investment tax credit rate is immediately expanded to 20%, annual tax revenue will decrease by 5 trillion won. This is about one-tenth of this year's forecasted national tax reduction amount (59.5 trillion won). The Ministry of Economy and Finance is also concerned that expanding tax benefits only for semiconductors could cause fairness issues with other new growth industries such as batteries and bio, and lead to a surge in demands for support for other industries.

Moreover, since the Restriction of Special Taxation Act was amended last year to designate semiconductors, vaccines, batteries, etc., as 'national strategic technologies' and provide large corporations with up to 40% tax credits on research and development (R&D) expenses and small and medium enterprises with up to 50%, there is considerable burden in pursuing additional tax cuts.

Therefore, it is uncertain whether tax incentives for semiconductor facility investments will be significantly expanded in discussions among related ministries after the new government takes office. Choo Kyung-ho, the candidate for Deputy Prime Minister and Minister of Economy and Finance, proposed a bill last April to raise the semiconductor facility investment tax credit rate to 50%. However, if he assumes the ministerial position, it is unlikely that he will advocate for bold tax benefits as he did during his time as a lawmaker. Passing the bill through the National Assembly is also a significant hurdle. In the United States, Congress is discussing a 25% tax credit for semiconductor facility investments, but the legislative outcome remains uncertain.

Some argue that domestic semiconductor industry development should focus on policy support related to semiconductor workforce training, deregulation such as easing permits, and other measures.

A Ministry of Economy and Finance official said, "We plan to have full discussions after the new government takes office," adding, "While we recognize the need to support the semiconductor industry, substantial tax benefits have already been provided in areas such as R&D, and this level is by no means behind other countries worldwide."

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