[Exclusive] Opposition: "Add Hydrogen Too"... Semiconductor Radical Tax Credit Faces Rough Road in National Assembly

After the Supplementary Budget Bill Passed on the 23rd Last Month
One Week Later, Yoon's Remarks Changed the Ministry of Economy and Finance's Position
Opposition: "A Uniform 10% for Semiconductors, Displays, and Hydrogen"

[Asia Economy Reporter Hyunju Lee] As the government is re-pushing a plan to raise the investment tax credit rate for major semiconductor companies up to 25%, the Democratic Party of Korea has proposed a new plan suggesting that a uniform 10% rate should be applied not only to semiconductors but also to strategic technology industries such as hydrogen.

Shin Dong-geun, the opposition party floor leader of the National Assembly's Planning and Finance Committee and a member of the Democratic Party, stated in a position paper sent to Asia Economy on the 4th, "The government is trying to significantly raise the tax credit rate only for semiconductors, but this could violate fairness with other industries. Therefore, it is necessary to take this opportunity to expand the list of business items by designating hydrogen and others as strategic technology industries and apply a uniform 10% tax credit rate to increase corporate investment."

Currently, under the Restriction of Special Taxation Act (RSTA), strategic technology industries include semiconductors, batteries, and vaccines. The logic is that expanding the business items to include industries such as displays and hydrogen and applying a uniform 10% tax credit would be fairer.

Earlier, on the 3rd, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho reported at the Cabinet meeting presided over by President Yoon Seok-yeol a plan to significantly raise the tax credit rate for investments in national strategic technology facilities such as semiconductors: from 8% to 15% for large and medium-sized enterprises, and from 16% to 25% for small and medium-sized enterprises. Considering an additional 10% tax credit on increased investments, large companies could receive up to a 25% tax credit benefit, and small companies up to 35%.

The semiconductor tax credit requires an amendment to the Restriction of Special Taxation Act (RSTA), and with the Democratic Party proposing such a 'package tax credit plan,' difficulties are expected in passing it through the National Assembly.

"It’s no laughing matter that a single presidential remark led to a 15% tax credit"

Earlier, on the night of the 23rd of last month, the National Assembly passed a bill to raise the investment tax credit rate for large companies in the national advanced strategic industry from 6% to 8% as part of the budget-related bills.

Until just before the plenary session, there were significant disagreements within the ruling party between the leadership and the relevant standing committee. On the morning of the 23rd, People Power Party floor leader Joo Ho-young even predicted that semiconductor-related bills would be difficult to even bring up due to lack of agreement. The ruling party proposed expanding the tax credit to 20% for large companies, 25% for medium-sized companies, and 30% for small companies by 2030, while the opposition party insisted on 10%, 15%, and 30%, respectively.

However, the Ministry of Economy and Finance maintained the position that Korea’s semiconductor tax support is already at a high level compared to major countries. Ultimately, to process the budget-related bills, the Planning and Finance Committee’s tax subcommittee accepted the government’s proposal (8%, 8%, 16%).

[Image source=Yonhap News]

The twist came just a week after the bill’s passage, on the 30th of last month, when President Yoon Seok-yeol instructed to actively consider further expanding tax support for national strategic industries. The Ministry of Economy and Finance presented an additional tax cut plan just ten days after the related law was passed.

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho said, “I believe there is consensus on the need for unprecedented tax benefits for national strategic technologies,” expressing high expectations for the bill’s passage in the National Assembly. Since both ruling and opposition parties proposed higher credit rates than the government’s plan during last year’s year-end review, it is expected to be processed smoothly.

On the other hand, Representative Shin said, “Just a few days ago, during the tax law revision, the Ministry of Economy and Finance insisted on an 8% tax credit and pushed through the government’s plan, but now, due to a single presidential remark, a 15% increase is being announced, which is no laughing matter,” adding, “For expanding investment, it is preferable to approach through investment tax credits rather than corporate tax cuts from the start.”

There is also a sense of embarrassment within the ruling party. The Planning and Finance Committee had to pass a bill amending the National Debt Act linked to the RSTA related to individual investment government bonds, which was passed as a budget-related bill, but it was rejected at the Economic and Fiscal Subcommittee meeting on the 26th of last month due to the absence of Shin Dong-geun, the opposition party floor leader of the Planning and Finance Committee.

Ryu Seong-geol, the ruling party floor leader of the Planning and Finance Committee from the People Power Party, said, “At this point, it is difficult to make any predictions about the RSTA amendment bill,” adding, “We need to listen to the opposition’s opinions and review it.”