South Korea plans bigger tax breaks to bolster its chip sector

SOUTH Korea’s government plans to hike tax breaks for big chip companies’ capex to as much as 25 per cent after President Yoon Suk Yeol called for bigger incentives to fuel the critical sector.

Big companies will get a tax credit of 15 per cent on investments on manufacturing facilities, up from a previously proposed 8 per cent, while smaller companies’ capex spending will get a tax break of 25 per cent, up from 16 per cent, according to a finance ministry statement. Any additional investment in chipmaking in 2023 will get another 10 per cent tax break, the ministry added. The broadened plan, which will be proposed this month, could reduce the tax burden on companies by more than 3.6 trillion won (S$3.8 billion).

Home to leading memory chipmakers Samsung Electronics and SK Hynix, Korea has been caught between the US and China in an escalating fight over semiconductors, which control key technologies from artificial intelligence to missile defences.

Yoon ordered his government just last week to devise stronger incentives to drive its chip industry, accusing opposition lawmakers of impeding that critical effort as other countries spend billions on semiconductor policy support.

In a strongly worded statement, Yoon blasted a bill passed on Dec 23 with a smaller-than-envisioned tax cut for corporates. It called for a tax break of 8 per cent for big companies, falling shy of the 20 per cent that a special committee of experts had previously recommended.

US, China and Japan are pouring billions into building up their own chip supply chains, as more countries embrace tech protectionism after pandemic-driven logistics snarls highlighted countries’ dependence on one another for key electronic components.

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US sanctions on advanced chip technology exports bound for China are putting increased pressure on Korea to choose between the US, its security ally, and China, its biggest trade partner. Both have asked South Korea to expand chip production partnerships, and Yoon’s ruling party has formed a 13-member special committee to brainstorm a solution. BLOOMBERG