Semiconductor Special Committee and Academic Societies Criticize K-Chips Act's 8% Tax Credit Increase as "Cutting Off Korea's Semiconductor Future"

People Power Party Semiconductor Special Committee Private Members and Four Major Semiconductor Technology Societies Criticize Tax Incentive Limitation Act Amendment Passed by National Assembly

The scene of the National Assembly plenary session held on the night of the 23rd [Image source=Yonhap News]

[Asia Economy Reporter Kim Pyeonghwa] As the increase in the tax credit rate for facility investment, demanded by the semiconductor industry and academia, has effectively stalled, private members of the People Power Party's Special Committee for Strengthening Semiconductor Industry Competitiveness and representatives of the four major semiconductor-related academic societies issued a statement of criticism. This came after the amendment to the Restriction of Special Taxation Act, passed by the National Assembly last week as part of the K-Chips Act, raised the tax credit rate by only 2 percentage points, contrary to the original intent.

On the 26th, private members of the People Power Party's semiconductor special committee and representatives from the ▲The Institute of Electronics Engineers of Korea ▲Korea Microelectronics and Packaging Society ▲Korea Semiconductor Display Technology Society ▲Korea Semiconductor Society issued a statement saying, "The confirmed 8% tax credit for facility investment in the recently amended Restriction of Special Taxation Act is significantly insufficient compared to competing countries," and "We request wise reconsideration by the government and political circles for the future of the semiconductor industry and South Korea."

They emphasized, "Leading semiconductor countries such as the United States, Europe, and Japan are strengthening support for private companies to protect and nurture their semiconductor industries, and the governments of China and Taiwan are already dedicating national capabilities to support them," adding, "All of our semiconductor competitors have already shifted from market autonomy to active national support and intervention."

They continued, "When national support intervenes, the competitiveness of private companies inevitably changes accordingly," and "Our private companies also find it difficult to maintain the gap or even survive in competition with overseas companies without active government support." They further criticized, "This situation cuts off the future of our semiconductor industry and inflicts hope torture on future generations."

Earlier, on the 23rd, the National Assembly passed the amendment to the Restriction of Special Taxation Act, known as the K-Chips Act, along with the amendment to the National Advanced Strategic Industry Act in the plenary session. The bill included a proposal to increase the tax credit rate related to facility investment in national strategic and core technologies from the existing 6% to 8%, a 2 percentage point increase. The credit rate for large corporations was set at 8%, while the rates for medium-sized enterprises (8%) and small and medium enterprises (16%) were maintained at their existing levels.

The amendment to the Restriction of Special Taxation Act saw a lower tax credit rate than the original proposal after bipartisan agreement and government coordination. This was because the government, concerned about reduced tax revenue, proposed an 8% rate lower than the ruling party's proposal (20%) and the opposition's proposal (10%). The Ministry of Economy and Finance stated that raising the tax credit rate to the ruling party's proposal would reduce corporate tax revenue by 2.697 trillion won in 2024.

The semiconductor industry and academia believe that if timely responses are not made amid governments competing with various supports, the competitiveness of the domestic semiconductor industry will inevitably decline. For example, the United States supports companies building semiconductor factories locally with a 25% tax credit rate. Taiwan is responding by recently pushing a bill to raise the tax credit rate for semiconductor companies' research and development (R&D) and facility investment to 25%.

Yoo Hwan-ik, head of the Industrial Headquarters at the Federation of Korean Industries, said, "Increasing the tax credit rate for facility investment in advanced industries needs to be approached from a long-term perspective, as Korea can secure future industrial leadership and continuously increase tax revenue through industrial and corporate growth," and criticized, "There is concern that the National Assembly and government are mired in the short-term effects of reduced tax revenue."

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