Experts Say "Facility Investment Tax Credit Rate Should Be Increased" [Semiconductor Support]

③ "Support Still Far from Enough"... What Is the Solution?

[Asia Economy Reporters Moon Chaeseok, Han Yeju] While the ruling party and government’s semiconductor development strategy is welcome for encompassing workforce, infrastructure, and materials/components/equipment, semiconductor experts point out that support levels need to be raised in detailed aspects. They express regret that the scale of support is relatively smaller compared to advanced countries like the U.S. and Japan, which are competing with Korea. In particular, there is strong support for the claim that the tax credit should be raised to at least the ruling party’s proposed level of '20% or more for large corporations.'

◆ Tax Credit, At Minimum Accept the Ruling Party’s '20% or More for Large Corporations' = Summarizing the semiconductor industry and academia’s response to the ruling party and government’s strategy on the 9th, it is 'the intent is agreed upon, but effectiveness needs to be enhanced.'

The semiconductor industry unanimously criticized the tax support part of the government’s measures as the most insufficient. They say there is no 'big solution' to attract facility investment. First, there was criticism regarding the part in the 'Semiconductor Superpower Achievement Strategy (Superpower Strategy)' announced by related ministries on the 21st of last month, which set the tax support standard for large corporations’ facility investment at 8-12%, the same as for mid-sized companies. According to the industry, the U.S. and Europe have announced tax credits of up to about 40% of semiconductor facility investment amounts.

The prevailing opinion is that the level should at least not be significantly lower than that of competing countries. Since right after President Yoon Seok-yeol’s election, domestic companies have requested tax credit rates of 20-50%, but both the ruling party and government proposals fall short of this, which the industry finds disappointing. A representative from the Federation of Korean Industries said, "The U.S. is pushing for a tax credit of up to 40% on semiconductor facility investment, and (Korea) needs to raise the tax credit rate to a corresponding level," adding, "It is necessary not only to implement government support plans early but also to promote advanced support discussions through consultations with the political sector."

The industry consensus is that at least the tax credit increase proposal in the ruling party’s 'Semiconductor Industry Competitiveness Enhancement Act' should be accepted. The proposal includes expanding the tax credit rate for national advanced industry facility investments such as semiconductors, currently 6-16% combined for large and small companies, to 20% for large corporations, 25% for mid-sized companies, and 30% for small companies. However, it is reported that there is considerable opposition from fiscal authorities.

◆ Floor Area Ratio Increase Approved… Government to Resolve Issues Like Industrial Water Intake = The increase of the facility floor area ratio ceiling from 350% to 490% in the government’s superpower strategy is welcomed. However, considering that the purpose of easing infrastructure regulations is to attract facility investment, there are opinions that broader regulatory relaxations are needed, such as for industrial water, electricity rates, and opposition from local residents to facility investment.

Currently, conflicts over factory water intake between Gyeonggi Province’s Yeoju City and SK Hynix surrounding the groundbreaking of SK Hynix’s semiconductor cluster (industrial complex) in Yongin are a reality. The consensus is that such practical matters should be coordinated at the government level, and adding laws or administrative regulations is not desirable.

Lee Joo-wan, a research fellow at POSCO Research Institute and former SK Hynix employee, said, "It is necessary to relax standards for electricity, water supply and sewage, opposition from local residents, as well as environmental evaluation criteria for hazardous substances, and to ease regulations near water sources and residential areas that ban certain substances. These issues are more urgent than floor area ratio relaxation." He added, "For example, at the Hynix plant in Icheon, Gyeonggi Province, copper could not be used because it is near a water supply, causing setbacks in next-generation memory semiconductor experiments. The government’s role is to flexibly resolve such difficulties."

◆ Need to Enhance Effectiveness of Samsung and SK’s 'Practical Workforce' Training Measures = There are also criticisms that the workforce training measures lack effectiveness. In particular, regional education sectors are strongly opposing the semiconductor workforce training plans centered on universities in the Seoul metropolitan area. Kim Yang-peng, a senior researcher at the Korea Institute for Industrial Economics and Trade, said, "It is true that Korea’s semiconductor industry is short of personnel relative to its scale, and it is clear that this needs to be increased," but advised, "Since most semiconductor departments are concentrated in Seoul, companies need to find structural ways to maximize the use of excellent students from regional universities."

There is also an opinion that fairness between semiconductor department personnel and students from other departments should be considered. It is suggested that universities teach basic subjects such as materials and circuits, and that training for 3 months to 1 year after joining semiconductor companies is sufficient. The researcher said, "Those who majored in materials engineering, chemistry, physics, chemical engineering, etc., at university can also work in semiconductor companies," adding, "Limiting the opportunities for capable talents to work at other companies such as construction, steel, and petrochemicals is a reverse discrimination restricting freedom of occupation and may provoke backlash."

There are also criticisms that the core goal of the government’s 'Semiconductor Workforce Training Plan' announced on the 19th of last month?to train 150,000 people over 10 years?is too vague. The industry criticizes that ▲ in the short term, there are insufficient measures to train master’s-level or higher foundry (semiconductor contract manufacturing) specialists and to prevent the outflow of current engineers, and ▲ in the long term, there are inadequate plans to establish a basic education system in physics, chemistry, and mathematics at elementary, middle, and high school levels to support interdisciplinary curricula for bachelor’s degrees or higher.

There is widespread opinion that the government plan is insufficient to produce bachelor’s-level or higher talents immediately deployable in practical work at memory companies like Samsung Electronics and SK Hynix. In particular, concerns are raised that the effectiveness of the ▲ undergraduate semiconductor and AI semiconductor linked 'major track courses' and ▲ work-study parallel education courses provided to students at junior colleges and vocational high schools included in the government plan will be low.

In this regard, Kwon Oh-kyung, chairman of the Korea Academy of Engineering and a member of the ruling party’s Special Committee on Industrial Competitiveness Enhancement, proposed creating 15 to 20 'basic semiconductor departments' and a 'completion system' applicable nationwide at universities, significantly strengthening Samsung and SK’s recruitment support, on the premise that no legislative or administrative regulations are attached.