The National Assembly is currently discussing specific deduction rates for the proposed expansion of the semiconductor equipment investment tax credit. Both the ruling and opposition parties are pushing for an expansion of the current deduction rate, while also demanding the addition of hydrogen and electric vehicle industries to the national high-tech strategic industries. Among these, some voice concerns that the semiconductor tax credit's effectiveness is uncertain and that it could lead to a decrease in tax revenue and special privileges for large corporations and foreign companies.

Rep. Jang Hye-young: "Semiconductor tax benefits will not attract investment."
On the 13th, a National Assembly debate titled "Are Tax Cuts the Answer for the Semiconductor Industry?" was held at the National Assembly Members' Hall in Yeouido. The debate raised questions about the semiconductor tax benefits and called for a clearer estimate of the investment impact.

Justice Party lawmaker Jang Hye-young pointed out, “The 8% tax deduction is already the highest in the world, so what is the basis for raising it further to 15%? The standard is changing like a rubber band under the president’s influence.” Rep. Jang, who is concerned about a potential 7 trillion won decrease in tax revenue over five years, lamented, “A policy that does not even guarantee that tax cuts will lead to investment is nothing more than preferential treatment for large corporations.”

Lee Sang-min, a senior researcher at the Korea Institute for National Unification, said that Korea's government spending is less than 40%, and that "although it is a small government, its economic spending is 14% of GDP, its R&D investment spending is among the highest in the OECD, and its welfare spending is among the lowest."

The chief argued that the semiconductor tax reduction would be greater than the corporate tax reduction, saying, “If a tax deduction of up to 10% of the additional facility investment reduction is provided in addition to the 15% facility investment reduction, Samsung Electronics could receive a tax reduction of up to 7.9 trillion won, and SK Hynix could receive a tax reduction of up to 1.8 trillion won.”

Park Sang-in, a professor at Seoul National University's Graduate School of Public Administration, assessed that the Korean semiconductor industry is facing a nutcracker phenomenon, where it is being hit by low-price attacks from latecomers and is being hit by advanced technologies from advanced countries. Professor Park pointed out that “the government’s additional tax benefits are unlikely to have an impact on domestic investment by chipmakers, as they only provide tax benefits for investments that have already been planned.”

He added that the ultimate direction of the semiconductor ecosystem development strategy is to prioritize the achievement of RE100 and the eco-friendly energy supply plan, and to foster the small and medium-sized business and system semiconductor industries.

The opposition party is discussing increasing the tax deduction to 15% for large and mid-sized businesses and 25% for small and medium-sized businesses.
The opposition party is discussing increasing the semiconductor tax deduction from 15% to 25%, and People Power Party lawmaker Kim Hak-yong has proposed an amendment to expand the semiconductor tax deduction to 20% to 30%, drawing attention to its future outcome.

On the 13th, the Democratic Party of Korea held a private meeting with industry officials including Samsung Electronics, SK Hynix, and the Korea Semiconductor Industry Association. It was reported that the meeting that day heard the industry's opinions on investment tax credits for national advanced strategic industries such as semiconductors and the US Chips Act.

Korea is going all-in on cutting-edge industries, seeking to further expand its current tax credit rate for R&D costs for national strategic technologies, including semiconductors, to 30-50% and its tax credit rate for facility investment to 6-20%.

Taiwan recently passed a bill in January that raised the tax deduction rate for semiconductor R&D expenses from 15% to 25% and established a new 5% deduction rate for facility investment. Korea's current tax breaks are now even higher than this.

In addition, the semiconductor facility investment tax credit rate currently under discussion in the National Assembly is likely to increase from 8% to 15% for large and medium-sized enterprises, and from 16% to 25% for small and medium-sized enterprises. While a bipartisan agreement is expected in March, the Democratic Party is demanding an expansion of the scope of national strategic technologies eligible for the investment tax credit, including hydrogen and electric vehicles.

Some have proposed amendments that would increase the threshold to 20-30%. Representative Kim Hak-yong of the People Power Party proposed an amendment on the 9th that would significantly strengthen support by increasing the threshold to 20% for large and medium-sized enterprises and 30% for small and medium-sized enterprises.

With the Tax Subcommittee of the Planning and Finance Committee scheduled to review the revised Tax Special Measures Act, which includes the revision of the semiconductor facility investment tax credit, on the 16th, attention is focused on the level of tax credit ratio that will be agreed upon by the ruling and opposition parties to pass the review threshold and be submitted to the plenary session.