[The Editors' Verdict] 'Passed Everywhere'... The Secret Behind the National Assembly's Passage of the '8% Semiconductor Investment Tax Credit'

Presidential Office-Government Coordination Half-Done
Ruling Party Semiconductor Special Committee - Agenda Also Missing at Yoon's Lunch
Only One Tax Subcommittee Discussion in National Assembly... Superficial Review

[Asia Economy Reporter Choi Il-kwon] A revision bill to the Restriction of Special Taxation Act, which raises the tax credit rate for facility investment in national advanced industries such as semiconductors to 15% (for large corporations), is expected to be submitted to the National Assembly around the Lunar New Year holiday. It is fortunate that the government hurriedly moved to re-amend the bill after last year's regular session of the National Assembly only saw a slight 2 percentage point increase, drawing criticism from related industries. However, the fact that the government lacked steadiness to change policy direction after a single reprimand from the president, and that the National Assembly essentially acted as a 'rubber stamp,' is worth reflecting on.

The question raised immediately after the '8% tax credit rate for advanced industries' passed the regular session last month was whether the government and the Presidential Office had properly coordinated. In July last year, the government announced through a tax reform plan that it would raise the basic integrated investment tax credit rate from 6% to 8% for large corporations in the Restriction of Special Taxation Act revision bill. Separately, the ruling party, reflecting President Yoon Seok-yeol's intentions, formed a Semiconductor Special Committee last year to gather opinions from related industries and experts and proposed a revision bill to expand the investment tax credit rate for national strategic technologies to 20%. Although President Yoon repeatedly emphasized the importance of semiconductors and urged active support, the government’s original bill, which fell short of expectations, was reflected in the National Assembly.

An official from the Ministry of Economy and Finance said, "We certainly coordinated with the Presidential Office in advance." However, this is only half true. While there was coordination when forming the government bill, there was no further discussion after the ruling party’s bill was announced the following month.

In fact, even at a luncheon held at the Presidential Office building in September, shortly after the regular session began, where Yang Hyang-ja, chairperson of the ruling party’s Semiconductor Special Committee, and other committee members met with President Yoon, discussions on semiconductor support measures were limited to the budget. There was no request for tax law support at this meeting. Chairperson Yang handed President Yoon a pamphlet containing the contents of the Semiconductor Special Act, which substituted for discussions on tax law. Yang said, "I thought the Presidential Office would take care of the tax law," and later expressed frustration, saying, "I was shocked to hear that almost no discussions took place afterward."

Discussions in the National Assembly also focused on the budget, with tax law matters only superficially addressed. Choi Sang-mok, Chief Secretary for Economic Affairs at the Presidential Office, said, "The main interest was securing the budget rather than the tax law," adding, "As a result, the tax credit part was not properly handled."

The Planning and Finance Committee, which should have discussed the tax law, also bears significant responsibility. Due to conflicts over the formation of subcommittees, the entire schedule was delayed, and the content related to the investment tax credit in the Restriction of Special Taxation Act was officially reported for the first and last time at the 5th Tax Subcommittee on December 1 last year.

Even at that meeting, the focus was more on the validity of the procedure rather than the content. According to the National Assembly transcript of the day, Ryu Seong-geol, chairman of the Tax Subcommittee from the People Power Party, repeatedly stated, "We had consultations among the party whips." This implies that there were private separate consultations among the whips before the official subcommittee meeting. Then, Yoo Kyung-joon, also from the same party, raised an issue, saying, "I have not heard of consultations among the whips. Discussions should be held properly in the subcommittee, and if not resolved, then in the small subcommittee or among the whips, but changing the order is procedurally incorrect." Only a few opposition lawmakers mentioned the investment tax credit content.

During this process, the government stuck to its 'my way' stance, fearing a decrease in tax revenue. At the meeting, Deputy Minister of Economy and Finance Bang Ki-seon said, "It is already at the minimum tax level," and "Further expansion of the tax credit is not appropriate."

Continuous investment is vital for semiconductors. This is why companies cling to tax credits. The government, ruling party, and Presidential Office must learn from the zigzag policy approach as a cautionary example in supporting advanced industries.