South Korea plans bigger tax breaks to boost chip sector

SEOUL – South Korea’s government plans to increase tax breaks for big chip companies’ capex to as much as 25 per cent, after President Yoon Suk-yeol called for bigger incentives to fuel the critical sector.

Big companies will get a tax credit of 15 per cent on investments on manufacturing facilities, up from the planned 8 per cent under legislation passed in December, the Finance Ministry said in a statement. Smaller companies’ capex spending will get a tax break of 25 per cent, up from 16 per cent. Any additional investment in chipmaking in 2023 will get another 10 per cent tax break, it said.

The broadened plan, which will be proposed in January, could reduce the tax burden on companies by more than 3.6 trillion won (S$3.8 billion).

Home to leading memory chipmakers Samsung Electronics and SK Hynix, South Korea has been caught between the United States and China in an escalating fight over semiconductors, which control key technologies such as artificial intelligence and missile defences.

It is unusual for an administration to propose substantive changes so soon after lawmakers pass a Bill. Mr Yoon ordered his government just last week to devise stronger incentives to drive its chip industry, accusing opposition lawmakers of impeding that critical effort as other countries spend billions on semiconductor policy support.

It is uncertain whether the revised Bill will gain the necessary support of the majority-wielding opposition party at the national assembly. Opponents argue that such incentives endanger government finances and would benefit only big companies.

In a strongly worded statement, Mr Yoon blasted a Bill passed on Dec 23 with a smaller-than-envisioned tax cut for corporates. It called for a tax break of 8 per cent for big companies, falling shy of the 20 per cent that a special committee of experts had previously recommended.

The US, China and Japan are pouring billions into building up their own chip supply chains, as more countries embrace technology protectionism after pandemic-driven logistics snarls highlighted countries’ dependence on one another for key electronic components.

US sanctions on advanced chip technology exports bound for China are putting increased pressure on South Korea to choose between the US, its security ally, and China, its biggest trade partner. Both have asked South Korea to expand chip production partnerships, and Mr Yoon’s ruling party has formed a 13-member special committee to brainstorm a solution. bloomberg