[Retreated K-Chips Act]② Rapid Support Also Fails... Dragging On for 4 Months

Barely Passed '8% Tax Credit'
Missed Both 'Speed' and 'Substance'
Yoon "Tax Support Must Be Further Expanded"
Korean Semiconductor Companies on 'Worsening Path'

[Asia Economy Reporter Han Ye-ju] The status of South Korea's semiconductor industry, once the world's best, is already shaking. Semiconductor export values have declined for four consecutive months, inventories have surged, and production is decreasing. Before the crisis hit, a groundbreaking 'Semiconductor Special Act (K-Chips Act)' should have empowered companies, but four months were wasted in partisan conflicts. Although the president expressed his intention to revise the law, companies now seem to have lost hope. Meanwhile, competing countries such as the United States, China, and Japan have solidified their 'Silicon Shield' with bold support measures.

President Yoon Suk-yeol's directive on December 30 regarding the already passed tax law amendment in the National Assembly plenary session?"The Ministry of Economy and Finance should actively consider additional tax support measures for national strategic industries such as semiconductors in consultation with related ministries"?reflects recognition that current support measures need supplementation. This also expresses anxiety that the realization of the 'semiconductor superpower' promised by the Yoon administration could remain just a dream if things continue as they are.

President Yoon declared active support for the semiconductor industry immediately after taking office. In his opening remarks at the Cabinet meeting held at the Presidential Office on June 7, he stated, "Semiconductors are a national security asset and the core of our industry," adding, "We all must unite to create institutional conditions so that the semiconductor industry can further expand its current competitiveness." Recognizing the importance of the semiconductor industry, both ruling and opposition parties proposed special semiconductor laws. In the People Power Party, independent lawmaker Yang Hyang-ja, as chair of the party's Semiconductor Special Committee, introduced the K-Chips Act in August. In the Democratic Party, Kim Han-jung, the ranking member of the Industry and Energy Committee, presented a semiconductor special law in November.

The core content of these amendments was undoubtedly the 'increase in tax credit rates.' However, partisan disagreements over this issue ultimately delayed the passage of the amendments for a long time. The ruling party proposed raising the tax credit rate to 20% for large corporations and 25% for mid-sized companies by 2030, while the opposition opposed it as a conglomerate privilege and suggested 10% and 15%, respectively. While the bill review stalled, even the Ministry of Economy and Finance expressed reluctance, stating that if the ruling party's proposal passed, corporate tax revenue would decrease by 2.697 trillion won in 2024. Ultimately, the Ministry's position to set the tax credit for large corporations at 8% was accepted, resulting in missing both 'speed' and 'substance.' Even this is now facing revision, making further delays inevitable. President Yoon said, "I regret that the tax support plan proposed by the (People Power Party) Semiconductor Special Committee was not sufficiently discussed," and ordered a revision.

Meanwhile, domestic semiconductor companies are on a 'downward spiral.' Samsung Electronics posted a poor performance in the semiconductor sector in Q3 this year, with operating profit nearly halving compared to the same period last year. SK Hynix's Q3 operating profit also plunged 60.5%, and its operating margin dropped to 15%. The Q4 outlook is bleak as well. Financial information firm FnGuide projected Samsung Electronics' average operating profit for Q4 at 7.3968 trillion won, a 46.66% sharp decline from 14 trillion won in the same period last year. SK Hynix, which has a higher memory proportion than Samsung Electronics, is expected to post a loss in Q4. The forecasted operating loss is 643 billion won. A company that used to generate trillion-won operating profits is likely to post trillion-won losses next year. An industry insider said, "Timing is crucial in policy. In 2022, when the U.S. announced 'Chip 4' and countries poured subsidies into semiconductors, South Korea desperately needed political support but missed the timing, and in the meantime, corporate performance and investment sentiment sharply contracted."