South Korea Looks To Expand Tax Cuts For Chip Firms

The South Korean government has announced plans to expand tax breaks for chip manufacturers, revising a bill passed only last week.

The plan is part of a broader government initiative to boost the domestic chip industry at a time when the US, China, Japan and the European Union are all pouring billions into their own semiconductor supply chains, following pandemic disruptions that highlighted how much the countries’ economies currently depend upon one another.

The South Korean initiative would give big companies a tax credit of 15 percent on investments and manufacturing facilities, up from the 8 percent included in last month’s legislation, the finance ministry said in a statement.

Tax breaks

Smaller firms would receive a tax break of 25 percent on capital expenditures, up from 16 percent, and any additional investment in chipmaking in 2023 would receive another 10 percent tax break.The plan, to be proposed this month, could reduce chipmakers’ tax burden by more than 3.6 trillion won ($2.8bn, £2.3bn).

South Korea, home to leading chipmakers Samsung Electronics and SK Hynix, has been caught in tech-focused geopolitical tensions between the US, its defence ally, and China, its biggest trade partner.

Critical industry

The trade war has focused increasingly on the high-end microchips that drive key sectors such as artificial intelligence and defence.

The South Korean government plan follows comments by president Yoon Suk Yeol, who last week criticised the existing tax break bill for providing smaller tax cuts than expected.

In 2021 Samsung heir and de-facto head Jay Y. Lee was released from prison on parole after serving 18 months of a 30 month sentence for bribery and embezzlement, largely because the South Korean and US governments felt his presence at Samsung was critical to the global semiconductor industry.