[2023 Economic Policy] Display Industry's Long-Standing Wish 'Joteopbeop' Finally Lifted... Annual Tax Reduction of 150 Billion Won

Next Year, 'National Strategic Technology' Included in Special Tax Law, Tax Credit Rate Doubled

Annual Tax Reduction of 100 to 150 Billion Won... Timely Investment Wings for Competing with China in Weaponry

Samsung Display employees inspecting the production line. (Photo by Samsung Display)

[Asia Economy Reporter Moon Chaeseok] The government has decided to double the tax credit amount for displays starting next year. The R&D and facility investment tax credit rate will be increased from 3% to 6%. The display industry estimates that it will pay 100 billion to 150 billion KRW less in taxes annually. The industry interprets this as securing the capacity not only to compete technologically with China but also to engage in investment competition, as it has gained a golden opportunity to expand investment momentum (growth drivers).

On the 21st, the government announced the 'New Growth 4.0' strategy, which includes changing the display industry’s classification under the Restriction of Special Taxation Act from 'New Growth and Core Technology' to 'National Strategic Technology' starting next year. This resolves a long-standing issue for the Korean display industry, which had completely lost leadership in the LCD (Liquid Crystal Display) sector due to China's low-price offensive. The industry has appealed to the government and political circles that it is difficult to suppress China with 'technological super-gap' alone and that bold tax benefits must be provided to increase timely investment opportunities.

Until now, displays were classified as new growth and core technology under the Restriction of Special Taxation Act and received a maximum tax credit of 3%. This time, by being included in national strategic technologies, which previously only covered semiconductors, batteries, vaccines, etc., the tax credit rate has increased to a maximum of 6%. According to the Korea Display Industry Association, the industry plans to invest about 50 trillion KRW over the next five years. Being included in national strategic technologies under the Restriction of Special Taxation Act is expected to provide an additional annual benefit of about 100 billion to 150 billion KRW.

The government announcement is also good news for major panel companies such as Samsung and LG. According to the industry and the Financial Supervisory Service, Samsung Display invested an average of 5.02 trillion KRW annually in facility investment over five years from 2017 to last year, and LG Display invested 5.44 trillion KRW. Under the existing law, they could have saved 150.6 billion KRW and 163.2 billion KRW, respectively. With the law change, the tax reduction amount will double to 301.2 billion KRW and 326.4 billion KRW. Both companies are under financial pressure due to the recession, making it difficult to invest as much as before in the short term. Even considering this, it is true that they will be able to save hundreds of billions to trillions of KRW in taxes.

Lee Dong-wook, vice chairman of the association, said, "Following the government's designation of the display industry as a national advanced strategic industry on the 4th of last month, the designation as an advanced strategic technology under the Restriction of Special Taxation Act is like a blessing for the display industry," adding, "Next year will be a year in which companies will do their best to overcome the difficult economic situation by taking the lead."

The government's declaration to maintain technological super-gap leadership is also positive for the industry. It plans to secure mass production technology for next-generation inorganic light-emitting displays such as Micro LED, nano-scale LED, and Quantum Dot (QD), maintaining a technology gap of more than five years with competitors like China until 2032. From 2025 to 2033, the government plans to support the establishment of an inorganic light-emitting display technology development ecosystem with a budget of 950 billion KRW. The government stated that it is planning a preliminary feasibility study, which is a procedure for budgeting.

Additionally, support will continue for securing core equipment for 8th and 10th generation OLEDs and localization technology for inorganic light-emitting materials and components. From 2020 to 2027, 493.4 billion KRW will be invested over eight years to establish a mass production system and an independent supply chain in these fields.

In the semiconductor sector, support measures include the creation of industrial complexes in Pyeongtaek and Yongin and the discovery of new industrial complexes. Considering the financial situation of companies like SK Hynix, which plans to reduce facility investment by 50% next year, the government intends to reduce corporate investment burdens and help expand production facility capacity in semiconductor complexes such as Pyeongtaek and Yongin.

High-level upgrades will be undertaken, such as converting public fab (factory) process systems within industrial complexes into network-based virtual systems. Education in design verification will be promoted to help companies cultivate highly skilled personnel. Next year, the government plans to amend the 'National Advanced Strategic Industry Act' and related laws to adjust permit periods to a maximum of 60 days and to accelerate investment execution through exemptions from preliminary feasibility studies for public institutions.

This semiconductor and display support is part of the Yoon Seok-yeol administration’s 120 national tasks, specifically the policy to secure a 'future strategic industry super-gap.' The government’s goal is to increase semiconductor export value by more than 30%, from 128 billion USD (about 166 trillion KRW) last year to 170 billion USD (about 220 trillion KRW) by the end of the administration in 2027.

A government official emphasized, "(By implementing this New Growth 4.0 strategy) we will solidify our status as the world's largest semiconductor production base and manage semiconductors, a core asset of economic security."