Large-scale Tax Cuts, Infrastructure Expansion Support Planned
The Ministry of Trade, Industry and Energy made public the draft of its semiconductor industry growth plan on April 15. The plan includes large-scale tax cuts and assistance for infrastructure expansion. In addition, industrial clusters for semiconductor equipment, material and component suppliers will be established in the metropolitan area.
These days, the global semiconductor industry is requiring more and more investment. According to market research firm IC Insights, Samsung Electronics is planning to invest US$28 billion in semiconductor manufacturing facilities this year and TSMC, the largest foundry in the world, is expected to invest US$27.5 billion this year.
Samsung Electronics, however, is relatively disadvantageous in that its investment is divided into the segments including memory chip and foundry whereas TSMC can concentrate its investment on foundry. Besides, Samsung Electronics’ domestic investment is disadvantageous in terms of taxes. At present, the domestic facility and R&D investments of a large corporation such as Samsung Electronics are subject to a corporate tax deduction of 3 percent and 20 percent, respectively. On the other hand, 6 percent and 40 percent are applied to those made by non-large companies.
In the meantime, in the United States, the CHIPS for America Act has been tabled so that a 40 percent tax deduction can be provided for every semiconductor facility investment in the United States. TSMC is likely to enjoy huge benefits in that it is planning to build six plants in the United States by investing US$36 billion. In addition, TSMC can reinvest the saved taxes and then the gap between the global foundry market shares of Samsung Electronics and TSMC will further widen with the latter already being approximately three times the former.
Samsung Electronics can investment more once the South Korean government provides more tax benefits. South Korean semiconductor companies are currently asking the government to raise the facility investment-related deduction rate to 50 percent and the government is said to be considering raising it to the level of the United States. At the deduction rate of 40 percent, Samsung Electronics can get a tax refund of 1.2 trillion won in purchasing 20 EUV lithography apparatuses for approximately three trillion won.
Still, the companies’ request is facing some hurdles. For example, the Ministry of Economy and Finance is expressing concerns over a decrease in tax revenue to follow the deduction rate adjustment. In addition, the adjustment requires not a revised enforcement decree but a revised law. In other words, the National Assembly must cooperate for the goal to be reached. Experts point out that the pace of execution of the industry growth plan also matters. “The government needs to execute the plan without any hesitation or delay while coming up with more incentives with the European Union as well as the United States and China regarding their semiconductor industries as an increasingly important part of national security,” one of them explained.
In the meantime, South Korean President Moon Jae-in remarked on April 15 that domestic automakers and semiconductor manufacturers need to join forces to deal with the ongoing automotive chip shortage. At present, no South Korean companies are producing automotive microcontrollers, the item in question. This is because the segment is still a small part of the market and the price of the item is much lower than those of chips for use in consumer electronics products and IT devices.
However, the importance of the market segment is increasing rapidly with the global automotive industry heading for the future. The automotive chip market is expected to grow from US$38 billion to US$67.6 billion from 2020 to 2026. The United States, Japan and Germany, the world’s top three carmakers, are trying to get the upper hand in the market with their market leaders Texas Instruments, Renesas Electronics and Infineon Technologies.