SEOUL, Jan. 3 (Korea Bizwire) — South Korea will seek to expand tax incentives on strategic industries such as chips amid the heightening competition in the global market, the finance ministry said Tuesday.
Under the proposed tax code revision, the government will apply a higher tax credit rate of 15 percent on facility investment in the chip industry for conglomerates, higher than the recently passed revision of 8 percent, according to the Ministry of Economy and Finance.
The rate for small and medium-sized businesses will also rise from 16 percent to 25 percent, it added.
In 2023, the government will also apply an additional tax credit rate of 10 percent on the amount of investment that increases on-year.
“In the wake of the pandemic and shortages in chip supply, the international community has re-recognized the economic and security value of having production capabilities at home,” the ministry said in a statement.
“Amid the escalating global competition for technologies and the supply chain, full-fledged support for strategic items with high economic security values, such as chips, is urgently needed,” it added.
The proposed plan could help the strategic industries, which include rechargeable battery makers, save 3.65 trillion won (US$2.85 billion) in taxes in 2024, the ministry added.
The announcement came only days after the National Assembly passed a revision to raise the rate from 6 percent to 8 percent in December, for conglomerates investing in strategic industries.
The government plans to come up with a detailed revision within this month and send it to the National Assembly for approval.
The move came four days after President Yoon Suk Yeol instructed officials to consider additional tax breaks for the semiconductor and other strategic industries.
Meanwhile, outbound shipments of memory chips, a key export item, inched up 1 percent on-year in 2022 to a record high of $129.23 billion amid a global economic recovery in the first several months of last year.
Semiconductors account for about 20 percent of exports by South Korea, home to Samsung Electronics Co. and SK hynix Inc.
“Amid the slowed growth of the global economy and the hike in interest rates, this year, the comprehensive challenge for the South Korean economy is set to rise further,” Finance Minister Choo Kyung-ho said during a press conference.
“With slowing exports, local firms’ investment is set to lose ground as well,” he added, pointing out such measures are necessary as the chip industry is the backbone of the economy, taking up 17.7 percent of the country’s total facility investment in 2022.