Tax Credit for Large Corporations Investing in Semiconductor Equipment Increased from 6% to 8%

Passage of Tax Credit Special Act for National Strategic Project Facility Investment
Yoon Young-seok: "Taiwan Only Applies 5% Credit Rate"
Yang Hyang-ja: "300 Trillion Won of Investment Funds Left the US"

[Asia Economy Reporter Hyunju Lee] The tax credit rate for large corporations investing in facilities for national strategic projects such as semiconductors, batteries, and vaccines will be increased from the current 6% to 8%.

On the night of the 23rd, the National Assembly held a plenary session and passed the amendment to the Restriction of Special Taxation Act, known as the 'Semiconductor Special Act (K-Chips Act)'.

The bipartisan agreement, prepared through discussions including the Tax Subcommittee of the Planning and Finance Committee, the standing committee in charge, decided to raise the tax credit rate for large corporations investing in national strategic technology facilities and new growth and core technology facilities from the current 6% for large corporations, 8% for mid-sized companies, and 16% for small and medium enterprises (SMEs) to 8% for large corporations only.

On the night of the 23rd, the partial amendment to the Restriction of Special Taxation Act was passed at the National Assembly plenary session.
[Image source=Yonhap News]

Earlier that morning, Joo Ho-young, floor leader of the People Power Party, met with reporters after the party's floor strategy meeting and said, "We requested the submission of semiconductor-related bills, but since the Democratic Party of Korea insisted on submitting other bills as well, discussions have not progressed," raising concerns that the bill's passage in the plenary session might be uncertain.

The bill includes provisions to provide tax credits at certain rates based on investment amounts for large corporations, mid-sized companies, and SMEs investing in facilities for national advanced strategic industries such as semiconductors and batteries. The existing tax credit rates are 6% for large corporations, 8% for mid-sized companies, and 16% for SMEs. However, the government expressed a position that due to revenue reduction, tax credits for large corporations could only be granted up to 8%. The People Power Party proposed raising the tax credit rates for semiconductor facility investments to 20% for large corporations, 25% for mid-sized companies, and 30% for SMEs by 2030. Meanwhile, the Democratic Party of Korea argued that this would be a 'chaebol privilege' and proposed 10% for large corporations, 15% for mid-sized companies, and 30% for SMEs.

However, in the plenary session, the bipartisan amendment was passed without dissent.

Yoon Young-seok, a People Power Party lawmaker who spoke in favor, argued, "Including the 4% tax credit for increased investment, the maximum credit can reach up to 12%." He added, "I am aware of concerns that the semiconductor business tax rates are lower compared to competitors like the U.S. and Taiwan, which might cause us to fall behind in global competition. However, that is not the case. In Taiwan, the semiconductor R&D tax credit is scheduled to be raised to 15-25%, but the tax credit for facility investment is planned to be 5%," he explained.

He also said, "It is true that the U.S. will apply a 25% tax credit for semiconductor facility investments starting next year," but added, "In the 1990s, the U.S. accounted for 37% of global semiconductor production, but recently it has dropped to about 10%, so they are expanding fiscal support." He further stated, "The U.S. 25% credit rate is intended to secure an advantage in the technological hegemony competition with China," and argued, "There is no need to set the rate the same as the U.S."

However, Yang Hyang-ja, an independent lawmaker who had demanded a maximum 20% tax credit rate for large corporations, spoke in opposition during the debate.

On August 1, at the Party-Government Policy Council held in the National Assembly to strengthen the competitiveness of the semiconductor industry, attendees including Kwon Seong-dong, Floor Leader of the People Power Party, Yang Hyang-ja, Chairperson of the Semiconductor Special Committee, Park Soon-ae, Deputy Prime Minister for Social Affairs, and Lee Chang-yang, Minister of Trade, Industry and Energy, posed for a commemorative photo. 2022.8.1 Photo by National Assembly Press Photographers [Image source=Yonhap News]

Yang said, "The government completely retreated the semiconductor facility investment tax credit rate, the most important policy for fostering the semiconductor industry, to 8% without even going through the Planning and Finance Committee's resolution process," and argued, "The ones who most want the semiconductor investment tax credit are small and mid-sized companies. If large semiconductor corporations stop investing domestically, small and mid-sized companies cannot grow either."

She continued, "Already, investment funds amounting to 300 trillion won have flowed out to the U.S.," and criticized, "This is not an improvement but a deterioration. It is a policy that drives global semiconductor companies out of Korea and pushes the Republic of Korea from the center to the periphery of the semiconductor industry."

The amendment to the Restriction of Special Taxation Act was passed in the plenary session with 225 votes in favor, 12 against, and 5 abstentions out of 262 members present.

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