[Corporate Shackles Corporate Tax] Korea's Top Two Tax Burdens Are Semiconductors... "Need to Consider Tax Benefits"

Samsung Electronics and SK Hynix Paid 17.2 Trillion KRW in Corporate Tax Last Year
Higher Corporate Tax Burden Rate Compared to Global Competitors
Samsung Electronics at 25.2%, 16.7 Percentage Points Higher Than Intel's 8.5%

[Asia Economy Reporter Park Sun-mi] An analysis has revealed that Korea's top seven export-driven leading companies bear an average tax burden that is 10 percentage points higher than their global competitors, despite lagging behind in sales and market capitalization. In particular, the tax burden borne by the semiconductor sector is overwhelming. The two semiconductor giants, Samsung Electronics and SK Hynix, paid a combined corporate tax of 17.2 trillion won last year alone. There is a growing call to apply tax incentives that reduce the tax burden to enable active investment in facilities and research and development (R&D) to foster the semiconductor industry.

◆ Korea's top corporate taxpayers are semiconductor companies = According to the Financial Supervisory Service's electronic disclosure system on the 14th, Samsung Electronics, which pays the most corporate tax among domestic companies, recorded corporate tax expenses of 13.4443 trillion won last year, surpassing 10 trillion won for the first time. This is an increase of over 3.5 trillion won compared to 9.9372 trillion won in 2020. SK Hynix also paid 3.7997 trillion won in corporate tax expenses last year, which is double the 1.4781 trillion won in 2020 and nine times the 423.5 billion won in 2019. Given Korea's large semiconductor export ratio, semiconductor companies have played a key role in increasing corporate tax revenues.

Compared to competitors, the tax burden on Korea's semiconductor industry is clearly evident. Applying Samsung Electronics' semiconductor division sales ratio of 33.7% and comparing it with global competitor Intel, Samsung's corporate tax burden rate was 25.2%, while Intel's was 8.5%, showing a 16.7 percentage point difference.

The high corporate tax burden on companies is not limited to the semiconductor sector. According to the office of Yoo Kyung-joon, a member of the People Power Party, the corporate tax expenses of the top 100 KOSPI companies by market capitalization amounted to 54.8613 trillion won last year, approximately 26.3 trillion won or double that of 2020. Notably, 95% of the excess corporate tax revenue last year came from the top 10 large corporations. The top 10 companies with the largest increases in corporate tax expenses, including Samsung Electronics, SK Hynix, Hyundai Motor, and POSCO, recorded an increase of 16.2797 trillion won, totaling 32.0656 trillion won last year. The increase from the top 10 companies accounts for 95% of the government's projected corporate tax revenue increase of 17.079 trillion won.

Concerns that Korea's corporate tax ratio is excessively high compared to the average of OECD member countries have been consistently raised for several years, but the pace of improvement remains slow. Korea's top corporate tax rate currently stands at 25%, exceeding the OECD average of 21.2%. It is also higher than Japan (23.2%), the United States (21%), the United Kingdom (19%), and Germany (15.8%).

◆ Other countries lower tax burdens to foster industries... Korea's discussion at 'starting' stage = Lowering corporate tax burdens allows companies to have more capacity to increase investment in facilities and R&D, which helps boost production, create jobs, and enhance industrial competitiveness. The United States implemented the Tax Cuts and Jobs Act (TCJA) proposed by the Republican Party in 2017, effective from January 2018, which lowered the corporate tax rate from a maximum of 35% to 21%.

The effects have been immediate. During the first three years of TCJA implementation (2018?2020), there was an average annual tax revenue loss of $76 billion due to the corporate tax cut, but from last year, tax revenues began to surge. This is because the corporate tax rate reduction stimulated corporate production and increased employment. Last year, U.S. corporate tax revenue reached $372 billion, a 25% increase compared to 2017, and it is projected to increase by 53% compared to 2017 by 2025. The proven effects of TCJA have benefited companies, workers, and the government alike.

The reason why countries worldwide aiming to foster the semiconductor industry have recently lowered corporate tax rates for semiconductor companies and increased tax credit rates for semiconductor R&D and facility investments lies here. The Chinese State Council introduced a policy last September to exempt semiconductor companies from the 25% corporate tax for the next ten years. The U.S. Senate has also proposed a bill to raise the tax credit rate for semiconductor facility investments up to 25%.

Korea's semiconductor industry is demanding an expansion of tax benefits for facility investments if the corporate tax rate cannot be lowered immediately. Currently, the tax credit rates for semiconductor facility investments are 6% for large corporations, 8% for mid-sized companies, and 16% for small and medium enterprises. Including an additional 4% credit for increased investment amounts compared to previous years, this amounts to a 10?20% deduction. The Korea Chamber of Commerce and Industry has officially requested a significant increase in the semiconductor facility investment tax credit rates to 20% for large corporations, 25% for mid-sized companies, and 30% for small and medium enterprises.

Lee Sang-ho, head of the Federation of Korean Industries' economic policy team, said, "Korea's corporate tax burden rate is higher than that of competitors such as the U.S., China, and Germany, which is one of the main reasons undermining the global competitiveness of domestic companies. Although tax revenues may decrease in the short term, in the medium term, expanded facility investments and job creation will increase added value, resulting in increased tax revenues."