[Column] K-Chips Act and the Soulless Ministry of Economy and Finance

[Asia Economy Sejong=Reporter Lee Jun-hyung] “We started reviewing the (semiconductor tax credit rate) immediately after the president's remark.”

This was the statement made by Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho, who visited Korean Air's Cargo Terminal 1 at Incheon Airport in the early hours of January 1, the first day of the new year. On that day, Deputy Prime Minister Choo announced that the government would unveil a plan within this week to raise the tax credit rate for semiconductor facility investments by large corporations from the existing 8% to over 10%. This came just eight days after the amendment to the 'Semiconductor Industry Competitiveness Enhancement Act (K-Chips Act),' which raised the tax credit rate from 6% to 8%, passed the National Assembly on December 24.

Originally, the 8% tax credit rate reflected the Ministry of Economy and Finance's position. The ruling party, the People Power Party's Semiconductor Special Committee, proposed raising the tax credit rate to 20%. The opposition party, the Democratic Party, suggested a 10% rate, but the Ministry of Economy and Finance strongly insisted on the government's proposal of 8%.

The Ministry of Economy and Finance insisted on the 8% tax credit rate due to concerns over a sharp decline in tax revenue. According to estimates by the National Assembly Budget Office based on the ruling party's proposal (20%), national tax revenue would decrease by 2.697 trillion won starting in 2024. By 2026, the tax revenue loss would increase to 4.4094 trillion won.

However, the atmosphere changed with a single remark from the president. Earlier, on December 30, President Yoon Suk-yeol said at a staff meeting, “I hope you actively consider additional tax support measures for national strategic industries such as semiconductors.” This was widely interpreted as a reprimand directed at the Ministry of Economy and Finance. Deputy Prime Minister Choo declared that he would push for an amendment to the K-Chips Act to raise the tax credit rate to double digits just two days after this 'stern order.'

It cannot be simply concluded that the 8% tax credit rate was a 'misjudgment.' From the perspective of the Ministry of Economy and Finance, the guardian of the national treasury, fostering the semiconductor industry is important, but there is also the responsibility to reduce the national debt, which has increased by over 400 trillion won in the past five years. Fiscal soundness is also a core policy of the Yoon Suk-yeol administration.

The problem lies in the Ministry of Economy and Finance's position reversing 180 degrees with just one remark from the president. The 8% tax credit rate was the result of comprehensive analysis by the ministry's financial bureaucrats. On December 24, the ministry released an official explanatory document, systematically rebutting criticisms that tax support for semiconductor investments was lower compared to major countries like Taiwan.

Of course, raising the tax credit rate to double digits is a welcome move in the business community. The ministry's reversal of its internal conclusion just two days after the president's directive could be seen as 'political sensitivity.' However, there remains a bitter feeling toward the 'soulless bureaucrats.'

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