A proposal to extend the expiration date of the tax credit for semiconductor research and development and facility investment until the end of 2031 and raise the tax credit rate by 5 percentage points passed through the subcommittee of the National Assembly's Planning and Finance Committee on the 11th. As both ruling and opposition parties push for various tax support legislation in light of the early presidential election, the implementation of the ‘K-Chips Act,’ which had been shelved last year, is also gaining momentum.
The Ministry of Economy and Finance's tax subcommittee held a meeting on the 11th and voted on the amendment to the Special Act on Taxation Limitation containing these details. The ruling and opposition parties had agreed on the amendment at the end of last year, but the bill was not brought to the plenary session due to clashes during the review of the opposition's 'reduced budget proposal' and the tax-related subordinate bill. It is expected to be put to the plenary session of the National Assembly after the full committee meeting on the 13th.
Currently, the semiconductor sector, along with secondary batteries, vaccines, displays, and biopharmaceuticals, is included in the 'national strategic technology' and receives tax credits for investment. The credit rates are 15% for large and medium-sized enterprises and 25% for small and medium-sized enterprises. If the amendment is implemented, the rates for semiconductor research and development and facility investment will rise to 20% and 30%, respectively.
The deadline for the tax credit has also been extended by 7 years until the end of 2031. The eligible expenditures include personnel costs, material costs, facility rental fees, and commissioned research and development costs incurred in corporate research institutes and dedicated research and development departments.
The application deadline for tax credits for national strategic technologies and new growth and source technologies, excluding semiconductors, has also been extended by 5 years. Until the end of 2029, large and medium-sized enterprises will receive credit benefits of 15%, and small and medium-sized enterprises will receive 25% each. As a result of compromising between the government's initial proposal (a 3-year extension) and the parties' agreement (a 10-year extension) presented during the tax review in December of last year, a 7-year extension proposal passed through the subcommittee on this day.
◇Expansion of ISA contribution and tax-exempt limit fails… “Boosting domestic stock market” “Benefits only for high-income earners”
The proposed amendment to the Special Taxation Act, which would double the contribution limit and increase the tax-exempt limit of the general investment-type Individual Savings Account (ISA) by 2.5 times, failed. Previously, the ruling and opposition parties had tentatively agreed at the end of last year’s tax review to raise the contribution limit from 20 million won (total 100 million won) to 40 million won (total 200 million won) and to increase the tax-exempt limit from 2 million won to 5 million won. They also reached a consensus on abolishing the post-verification regulation of income requirements for ISA and allowing temporary contributions within the total contribution limit for the youth leap account.
However, in that day's meeting, the opinions of the ruling and opposition parties were sharply divided. The People Power Party emphasized the need to expand the limit, citing the asset formation support function and the expansion of the capital market demand base. In contrast, the Democratic Party and other opposition parties repeatedly raised concerns that the benefits of raising the limit would concentrate on 'high-income earners with saving capacity.' There were also opinions that if the investment amount does not flow into the domestic capital market, it would contradict the purpose of the amendment. Given that the abolition of the financial investment income tax has already been confirmed, increasing benefits related to comprehensive taxation of financial income would logically lead to a 'reduction in tax burden for high-income earners.'
Park Seong-hoon, a member of the People Power Party, noted, “While emphasizing that it could boost the domestic stock market by encouraging investments from high-income earners, the Democratic Party staunchly opposed it, focusing solely on ‘value-up.’” He also stated, “It seems they are opposing it because of its connection to value-up and the financial investment income tax.” The Democratic Party, which had originally pushed for the implementation of the financial investment income tax, suddenly reversed its position to abolishment, considering the sentiments of the middle-class voters, which means it overturned the prior agreements related to ISA.