South Korea Offers Tax Relief to Increase Domestic Semiconductor Production

The South Korean government (South Korea) plans to offer tax benefits to chipmakers. (photo: dock. TSMC)

JAKARTA - The government of South Korea (South Korea) plans to offer tax benefits to chip and technology manufacturers investing there. This effort is to strengthen the supply chain and improve the domestic semiconductor industry.

According to a statement from South Korea's Ministry of Economy and Finance (MEF), large companies will get a 15 percent tax credit on investments in manufacturing facilities, up from the planned 8 percent under a law passed last month.

Smaller corporate capital expenditure spenders will get a tax break of 25 percent, up from 16 percent. Any additional investment in chip manufacturing in 2023 will get another 10 percent tax break.

The plan, which will be proposed this month, MEF believes could reduce the corporate tax burden by more than 3.6 trillion won (Rp 44 trillion) by 2024.

Before being implemented, the MEF's proposal must be approved by parliament, which is dominated by its rival Democratic Party. Where they claim this incentive will only benefit large companies and harm the public budget.

Last week, South Korean President Yoon Suk-yeol, a member of the People's 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 countries are spending billions of dollars to support the domestic semiconductor industry.

Yoon criticized the bill, which passed on December 23, offering smaller-than-expected tax incentives to companies. It proposes a tax break of 8 percent for large companies, much lower than the 20 percent suggested by a special committee of experts earlier.

Citing Bloomberg, Wednesday, January 4, the United States (US), China, Japan and Taiwan have poured billions of dollars into building their own chip supply chains, as more countries embrace technological protectionism after the logistical chaos driven by the pandemic, where one another interdependent countries for major electronic components.