DP proposes 100 trillion won package for semiconductor makers

The main opposition Democratic Party of Korea (DP) unveiled a bolder Korean version of the CHIPS Act compared to the proposals of the government’s or the ruling party. The party intends to extend tax breaks on infrastructure investment and research & development, which are scheduled to expire by the end of this year, and raise deduction rates considerably, based on opinions from economic leaders. This may signal a positive move in South Korean politics as the ruling party and the main opposition will likely shift their focus from fighting for political interests to competing to ensure the country’s competitiveness in the future.

As per the DP’s revision to the Act on Restriction on Special Cases concerning Taxation and proposal on the Semiconductor Special Act, semiconductor companies can have 25 to 35 percent of infrastructure investments deducted from their corporate tax amounts; and 40 to 50 percent of R&D investments taken off. Currently, they are offered deduction rates of 15 to 25 percent for the former; and 30 to 40 percent for the latter. The main opposition’s version promotes more generous tax credits and an extended applicable period of 10 years compared to the ruling party’s program, which only extends the period by six years with the current deduction rates kept intact. Added to this, the DP proposed to mandate the government to take the responsibility of building power and water supply systems and roads used to run semiconductor facilities. It also offered to raise financial support worth 18 trillion won, which has been confirmed by the administration, up to 100 trillion won for a wider range of policy-wise financial support for semiconductor makers.

Notably, the main opposition’s idea ensures that large and mid-sized businesses enjoy a deduction rate of 25 percent of infrastructure investment amounts, which is currently 15 percent, and an increased rate of 40 percent of R&D investments. After all, it seems like a more generous scheme for large companies given that the DP is often resistant to “preferable benefits for large businesses” or “tax cuts for the rich.” With it being part of the party platform, there will be less of a backlash from within. Regardless of the DP’s move, the administration is planning on initiating a financial support program for semiconductor businesses starting next month.

Considering that major nations already have special aid programs in place, South Korean political leaders have belatedly vied to better support the semiconductor industry. Moreover, the ongoing discussion does not involve subsidy programs that can immediately lessen the initial investment burden of semiconductor makers, which needs to be additionally discussed as well. In fact, Samsung Electronics was offered a nine-trillion-won subsidy for infrastructure investment in the United States. Likewise, Taiwanese company TSMC received more than four trillion won in subsidies in Japan where it constructed factories. The more factories it builds, the larger subsidy it will gain.

Nevertheless, it is good news that the ruling party and the main opposition are headed in the same direction with a shared view of ensuring better economic conditions for the future. As both sides will find it easy to agree to extend tax breaks, it needs to be addressed swiftly. If they put their heads together, it will help them overcome obstacles to investment in upgrading power grids and water supply systems in the Yongin Semiconductor Cluster.