15% of large and medium-sized enterprises
For SMEs, the rate is raised to 25%
Expansion of fields such as vaccines and hydrogen
The Democratic Party’s stance shifted rapidly
At the Tax Subcommittee of the Planning and Finance Committee held at the National Assembly on the morning of the 16th, Chairman Ryu Seong-geol is talking with Democratic Party member Shin Dong-geun, secretary of the opposition party. yunhap news
The amendment to the Restriction of Special Taxation Act (K-Chips Act) to support the semiconductor industry passed the Tax Subcommittee of the Planning and Finance Committee of the National Assembly on the 16th. If the plenary session passes, additional support will be provided three months after the ruling and opposition parties agreed on December 23 last year to raise the tax credit rate for large companies from 6% to 8%. Regarding the amendment, the Justice Party criticized both the Democratic Party and the People’s Power, saying, “President Seok-Yeol Yoon’s Ha Myung Law and preferential tax cuts for chaebol conglomerates using the pretext of supporting the semiconductor industry.”
The Ministry of Finance and Economy held a tax subcommittee on the same day and raised the tax credit rate for large and medium-sized companies from the current 8% to 15%, and for small and medium-sized enterprises, according to the amount of investment in national strategic technology facilities, from the current 16% to 25%. passed the amendment. It also included an increase in the additional tax deduction rate from 4% to 10% this year if the investment exceeds the annual average investment amount for the previous three years. Regarding the expansion of tax credits proposed by the Democratic Party, the ruling and opposition parties agreed to include not only semiconductors, but also vaccines, displays, hydrogen, future vehicles, and other cutting-edge technologies prescribed by Presidential Decree (Enforcement Decree).
Democratic Party lawmaker Shin Dong-geun met with reporters right after the subcommittee that day and said, “(The subject of the tax credit) was set according to the government’s original plan, but it included hydrogen, future means of transportation, and cutting-edge technology prescribed by Presidential Decree.” We made a big concession,” he said. Representative Ryu Seong-geol also said, “Korea can also move forward in the global semiconductor war,” and said, “People in the industry were concerned, but today it was dealt with with an agreement between the ruling and opposition parties.”
Justice Party lawmaker Jang Hye-young argued that there are problems with the bill in terms of procedure and content. Rep. Chang met with reporters after attending the tax subcommittee that day and said, “Today is the day when the National Assembly and parliamentary democracy of the Republic of Korea surrendered to the President’s office.” made with She criticized, saying, “Agreement on the contents of the bill is reached at a closed table between the two parties, and in fact, the parliamentary debate process is reduced to formality.”
In fact, the government’s proposal to increase the tax credit rate gained momentum as the Democratic Party, which had been passive in discussing it, changed its stance to deal with the agreement after a meeting with the semiconductor industry on the 13th. Instead of accepting the government’s bill, the Democratic Party is said to have named it the “Korean version of the IRA Act” and decided to expand tax credits not only to semiconductors but also to future cars and hydrogen energy industries. Six bills from the ruling and opposition parties with these contents were proposed over the past two days on the 14th and 15th, and even though they have to go through a deliberation period (15th) under the National Assembly Act, they were bypassed by merging them with other bills that day.
Rep. Jang also said, “Europe only has tax cuts for R&D investment, but there is no special tax credit for semiconductor companies. Tax benefits in Japan and Taiwan are lacking compared to Korea,” he said. He pointed out that they have to bear the burden or endure reductions in welfare benefits or public services.”
If the amendment passes the plenary session of the National Assembly, it will be the second increase in the tax deduction rate three months after the ruling and opposition parties agreed on December 23 last year to raise the tax credit rate for large companies from 6% to 8%. At the time of negotiations between the ruling and opposition parties last year, the power of the people insisted that the tax credit rate for large corporations should be raised to 20%, and the Democratic Party to 10%. However, as the Ministry of Strategy and Finance, which has maintained a sound fiscal stance, announced its position that “an 8% tax credit is by no means low,” the ruling and opposition parties agreed as per the government’s plan.
President Yoon put the brakes on this. On December 30 last year, President Yoon took issue with the Democratic Party’s opposition to lowering the top corporate tax rate and ordered “actively reviewing measures to further expand tax support for national strategic industries such as semiconductors.” Then, the Ministry of Strategy and Finance, which said it was concerned about the lack of tax revenue, changed its stance. On January 3, four days after President Yoon’s order, the Ministry of Strategy and Finance announced a plan to increase the tax credit rate for large corporations from 8% to 15% and for small and medium-sized enterprises from 16% to 25%. Deputy Prime Minister and Minister of Strategy and Finance Choo Kyung-ho explained, “The investment tax credit rate has been significantly raised because corporate tax did not go as (the government’s) intended.” On January 19, the government proposed a government bill that became the basis for this amendment.
On this day, the tax subcommittee also passed an amendment to apply the tax credit for donations to love hometown starting from January 1, 2023. Previously, due to a mistake by working-level staff, the government submitted an amendment to the Restriction of Special Taxation Act to the National Assembly to delay the tax credit for donations to love hometown, which should have been implemented from this year, from 2025, two years later.
The amendment passed at the subcommittee on this day is expected to be processed at the plenary session at the end of this month after going through the plenary meeting of the Equipment Committee and the Legislation and Judiciary Committee.
