Support Measures for Realizing the Semiconductor Superpower Promised by Yoon Released? [Semiconductor Support]

① South Korean Semiconductors Increasing Workforce and Adjusting Tax Support Scope

[Asia Economy Reporters Moon Chaeseok and Kim Pyeonghwa] As of August 2022, South Korea's semiconductor development strategy can be summarized as integrated support for workforce, tax incentives, and infrastructure. The Yoon Seok-yeol administration's transition committee declared the principle of 'talent development and deregulation,' and while this was pursued accordingly, the industry complained that 'the direction is right, but the level of deregulation is too low.' In response, the political sphere proposed deregulation measures more advanced than the government's plan. There is a growing call to further enhance the level of tax credits and to refine workforce development plans more meticulously by dividing them into short-term and mid-to-long-term strategies.

According to the government and industry on the 9th, the level of deregulation has increased in the order of the semiconductor deregulation bill led by the Democratic Party last year → government measures after President Yoon's inauguration → the People Power Party-led legislative amendment. First, the government announced the 'Semiconductor Workforce Development Plan' and the 'Semiconductor Superpower Achievement Strategy' on the 19th and 21st of last month, respectively, just two months after President Yoon took office. The 'National Advanced Strategic Industry Special Act (Semiconductor Special Act),' prepared by the opposition party's (Democratic Party) Semiconductor Special Committee last year, came into effect on the 4th.

Criticism of insufficiency has been continuous. The increase in the tax credit rate is low, the expansion of semiconductor departments is missing, and incentives are insufficient compared to competing countries. In response, the People Power Party's Special Committee on Strengthening Semiconductor Industry Competitiveness submitted the 'Semiconductor Industry Competitiveness Enhancement Act' on the 4th, which aims to increase the facility investment tax credit rate up to 30%. The ruling party's competitiveness enhancement bill includes provisions not found in the opposition's bill, such as the expansion of semiconductor departments and a significant increase in the tax credit rate (up to 8-12% for large corporations), which was criticized as insufficient in the government plan. Based on the government plan, the credit rates for large corporations, mid-sized companies, and small businesses are 8-12%, 8-12%, and 16-20%, respectively, but the bill raises them to 20% for large corporations, 25% for mid-sized companies, and 30% for small businesses.

The ruling party's bill also includes measures to enhance employment stability for high-level engineers in advanced foundry (semiconductor contract manufacturing) companies. A representative example is extending the tax reduction period for foreign engineers from 5 years to 10 years. The government plan includes nurturing 150,000 bachelor's, master's, and doctoral-level talents over 10 years until 2031, but there have been continuous criticisms about the lack of strong measures to prevent workforce and technology leakage. It is also pointed out as a limitation that only 30% (45,000 people) of the 150,000 will be filled through increased enrollment, while 70% (105,000 people) will be covered through short-term courses and double majors.

The problem is that parliamentary discussions are sluggish, and there are concerns that the tax credit cap may be lowered. Even within the ruling party, there are considerable opinions that a 'maximum 30% tax credit' is difficult due to controversies over preferential treatment for large corporations. While the tax credit rate for small and medium-sized enterprises will increase about twofold from a maximum of 16% to 30%, for large corporations it will increase more than threefold from 6% to 20%. The fiscal authorities' opposition, concerned about reduced tax revenue, is also reported to be strong.

There are also opinions that support for small and mid-sized companies should be increased even more than the ruling party's proposal. To diversify the portfolio of South Korea's semiconductor industry, which has been sustained solely by Samsung Electronics and SK Hynix's memory semiconductors, and to strengthen the fundamental capabilities, there is a strong call to form a solid supply chain encompassing fabless, materials, parts, equipment, post-processing, and packaging. Professor Park Jae-geun of Hanyang University's Department of Convergence Electronics Engineering (Chairman of the Korea Semiconductor Display Technology Society) said, "Raising the rate to 20% for large corporations (in the ruling party's proposal) is already commendable," but added, "I hope the rate for small businesses is raised to 50% and for mid-sized companies to 30-35%."