Raising Tax Credit for Semiconductor Plant Investments by Large Corporations from 6 to 8%…Tonight’s Plenary Meeting

An amendment to the Restriction of Special Taxation Act, which increases the tax credit for conglomerates on investments in semiconductor plants from the current 6% to 8%, will be tabled in the plenary session of the National Assembly on the night of the 23rd. The amendment to the special law, which will be presented today, also includes content to increase the income deduction rate from 40% to 80% for the use of public transport credit cards in the second half of this year. In the plenary session of this day, an amendment to the law on income tax is also presented, which postpones the taxation of virtual goods for another two years, which will come into force next month.

According to the National Assembly, the amendment to the special law, which will be submitted to the plenary assembly together with next year’s budget bill, provides for a tax deduction of 8% of the investment amount for large companies that invest in national strategic industrial assets with high-tech facilities such as semiconductors, batteries and biotechnology. Currently, the tax credit rate for large corporations is 6% of the investment amount. The tax credit rate for medium-sized businesses (8%) and small and medium-sized businesses (16%) will remain unchanged.

Previously, the Power of the People Special Committee for Enhancement of Competitiveness of Semiconductor Industry argued that the tax credit rate for facility investment in national strategic high-tech industries such as semiconductor should be sharply increased from 6% to 20% for large companies, from 8% to 25% for medium-sized companies and from 16% to 30% for small and medium-sized companies. After taking office, President Yoon Seok-yeol also stressed the establishment of a system to enhance the competitiveness of the semiconductor industry. Additionally, the Democratic Party has proposed tax credit rates of 10%, 15%, and 30%. The Ministry of Strategy and Finance had objected, citing concerns about a decrease in tax revenues, saying it could accept no more than 8%, but the Ministry of Strategy and Finance eventually accepted the position. Representative Ryu Seong-geol, secretary of the ruling party’s National Assembly Planning and Finance Committee, said, “There is a government opinion that the tax credit rate is too excessive , so this decision was made through consultation between the government and the opposition parties.” Independent lawmaker Yang Hyang-ja, chairman of the Special Committee on Semiconductors, said on social media that day: “The credit rate of tax has dropped to 8%, which is at the level of breaking a presidential election commitment.”

An amendment to the special law was also included in the revision of the special law to increase the income deduction rate from the current 40% to 80% for credit card use on public transport such as buses and subways between July and December of this year. The government plans to extend it until the first half of next year, which requires additional legislation.

The taxation of virtual activities, which was supposed to come into effect in January next year, is expected to be postponed again. The governing and opposition parties intend to draft the amendment to the Income Tax Law, which deferred the taxation of virtual goods for two years from 2023 to 2025, in a plenary session on this day. Initially, starting next year, a 20% tax rate was expected to be levied on profits exceeding 2.5 million won (deductible amount) per year raised as virtual assets. The government tried to start taxing virtual assets from October 2021, but it was postponed three times to January 2022, January 2023 and January 2025.