South Korea proposes chip industry tax breaks
Could save chip-makers nearly $3 billion next year
The South Korean government plans to offer significant tax benefits to chip firms and other technology companies that invest locally, in an effort to strengthen domestic supply chains and boost the country's crucial semiconductor industry.
According to a statement from the Ministry of Economy and Finance (MEF), the proposed changes will see big firms get a tax credit of 15% on investments in manufacturing facilities, up from the planned 8% under legislation passed last month.
The tax incentive for capital expenditure investment by smaller businesses will increase from 16% to 25%. The government will also provide a further 10% tax credit for any subsequent investment in chip manufacturing in 2023.
The MEF believes the measures could help businesses save more than 3.6 trillion won ($2.9 billion) in taxes in 2024.
However, the plan - to be proposed this month - is subject to approval by parliament, which is dominated by the rival Democratic Party. They claim these incentives will mainly benefit large companies and endanger public budgets.
Last week, South Korean President Yoon Suk-yeol, a member of the People Power Party, instructed his government to provide greater incentives to help the country's chip industry.
Yoon accused opposition legislators of obstructing the initiative, at a time when other nations are spending billions to support their domestic semiconductor industry.
Yoon criticised a bill that was passed on 23rd December, offering a smaller-than-envisioned tax incentives to companies. It proposed a tax break of 8% for large firms, far lower than the 20% that a special committee of experts had earlier advised.
The South Korean proposal comes after several other countries, including Taiwan and the United States, have announced intentions to bring chip production back home to strengthen their domestic semiconductor industries.
In November, Taiwan announced expanded tax breaks that would enable businesses to slash their tax bill by up to 25% if they invest a certain amount in domestic research and production.
In August, US President Joe Biden signed the CHIPS and Science Act, which offers local chip manufacturers billions of dollars in subsidies.
China and Japan are likewise investing in establishing their own chip supply chains, following pandemic-related logistical bottlenecks that exposed countries' reliance on one another for key components.
South Korea is the leading manufacturer of memory chips in the world, with local firms Samsung and SK Hynix controlling over 70% of the memory chip market worldwide.
US sanctions on exports of advanced semiconductor technology to China have increased pressure on South Korea to choose between China - its largest trading partner - and the USA, its security ally.
Both have urged South Korea to increase its chip manufacturing alliances, and Mr. Yoon's ruling party has formed a special committee to come up with a solution.