As the global competition for semiconductor subsidies intensifies, the South Korean government is looking to extend the K-Chips Act (Restriction of Special Taxation Act), which gives bigger tax incentives to investments in advanced industries, for another three years.

According to Korean government sources on Wednesday, the country’s Ministry of Economy and Finance is considering extending the application period of the K-Chips Act for an additional three years after 2025. The intention is to maintain tax benefits for corporate investment as well as attracting domestic investment.

The K-Chips Act returns 15 to 25 percent of taxes to companies that invest in facilities for national strategic technologies such as semiconductors, secondary batteries, and electric vehicles, and is set to expire at the end of 2024.

In a related development, the Ministry of Trade, Industry and Energy, the Ministry of Land, Infrastructure and Transport, and the Ministry of Environment also signed a win-win agreement with Samsung Electronics Co. and Gyeonggi Province on the same day to shorten the site preparation period for the Advanced System Semiconductor National Industrial Complex in Yongin, Gyeonggi Province, and start operating it from 2030 onwards.

But the issue is that major countries, including the United States and Japan, are offering substantial subsidies in addition to tax benefits to attract advanced companies. Korea does not offer companies much in the way of subsidies other than the K Chips Act, and critics point out that simply extending the K-Chips Act will not help Korea catch up in global industrial competition.

There are now calls for the government to break its practice of ‘favoring large companies’ and shift its policy toward technology support, as attracting next-generation industries has emerged as a key pillar of national economic security.

“We need to develop the Korean semiconductor ecosystem by providing subsidies to companies especially in the fields of fabless (semiconductor design), materials, components, equipment, and post-processing, where startups are the main players,” according to Paik Woo-yeal, an economic security expert and professor of political science and international studies at Yonsei University.

Inter-agency discussions to introduce these subsidies are currently underway, but as the majority opposition party does not support the move, some experts suggest that the government should initially provide indirect support via policy financial institutions. If the statutory capital limit of the Korea Development Bank (KDB), which has been capped at 30 trillion won ($21.77 billion) since 2014, is increased by about 10 trillion won over five years, the experts believe it could enable the state-owned bank to increase financial support for core industries such as semiconductors to up to 100 trillion won while maintaining its Bank of International Settlements (BIS) capital adequacy ratio, a measure of financial soundness.

“Since there is a precedent of increasing the statutory capital of the Export?Import Bank of Korea by 10 trillion won, we can discuss increasing the KDB’s capital,” a financial authority official said.

By Kim Jung-hwan, Park In-hye, and Yoon Yeon-hae

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