Parties rush to roll out competing chip bills with heftier incentives

South Korea’s rival parties are introducing stronger chipmaking support bills to boost the domestic semiconductors industry, sharing the consensus that existing policies are not sufficient for Korean chipmakers to compete against global rivals backed by massive financial grants.

On Tuesday, Rep. Kim Tae-nyeon of the main opposition Democratic Party of Korea introduced a bill that involves a whopping 100 trillion won ($72 billion) subsidy program.

Kim's proposal seeks to extend an existing corporate tax break that is set to expire this year to 2034 and raise the tax deduction rate by 10 percentage points.

The industry circle is raising hopes for the legislation of a chip-focused bill to pick up speed, seeing the "bolder" tax cut plan from the main opposition party coming after the ruling People Power Party's proposal bills aimed at boosting the domestic chip sector.

Under Kim's envisioned chips act, the corporate tax cut for facility investment would rise to 25 percent from the current 15 percent for large companies like Samsung Electronics and SK hynix, the nation’s top two chipmakers, and to 35 percent from the current 25 percent for enterprises and firms classified as small or midsized.

The tax break rate for R&D investment would also rise to 40 percent from the current 30 percent for the chip giants, and to 50 percent from the current 40 percent for the smaller firms.

Among the support plans include putting responsibility on the government for smooth supply of the electricity and industrial water needed to operate chip production facilities here, and a financial program for companies to secure renewable energy facilities. Creating a national semiconductor committee to bring together chip-related ministries, academia and the chipmakers is also among proposals under the prospective bill.

Lawmakers of the ruling People Power Party also announced proposal bills for the chip industry, largely focused on offering direct subsidies to chipmakers.

Rep. Koh Dong-jin of the ruling People Power Party, who was formerly president of Samsung Electronics, introduced his first proposal bill on June 19, which called for the government to designate a chip cluster and offer direct grants to cut operation and construction costs for chip firms. Koh worked at Samsung for almost 40 years before he was elected in the general election in April.

Koh's proposal also includes the plan of creating a special committee supporting the chip industry immediately under the supervision of President Yoon Suk Yeol, putting the government in charge of arranging the electricity and water supply for chip facilities and also for the government to establish a five-year strategy for the industry.

Another ruling party lawmaker, Rep. Park Choong-kwon has proposed a revised bill to extend the existing corporate tax break policy by six years to 2030.

Finance Minister Choi Sang-mok welcomed the proposals from both parties Wednesday, saying, “I look forward to a constructive discussion over the proposals in the deliberation process for revision in the budget and tax acts revisions.”

On the same day, the Finance Ministry announced the details of a 26 trillion won comprehensive chip support package that includes financial programs, research and development strategies and infrastructure support.

The first 18 trillion-won program, set to start in July, consists of 17 trillion won in low-interest loans and an additional 1.1 trillion won of stake purchases in competitive parts and materials makers.

“We welcome the proposals that specifically aim to support the chip industry. The financial and infrastructure support programs would substantially help chipmakers operate (if they are enacted),” an industry official said on condition of anonymity.

Kim Yang-paeng, a researcher at the Korea Institute of Industrial Economics and Trade, predicted the legislation would likely speed up related discussions at the National Assembly, citing the bipartisan consensus on the need for a more drastic support program for the chip industry.

"There are some differences in the details of the bills, but both parties are aware of the importance of the semiconductors industry. They would be able to pass the bill before the end of this year if they speed up the deliberation process," Kim said.

"Global competition is getting fiercer and semiconductors obviously have a big impact on the country's economy, exports and manufacturing industry. So the lawmakers would not sit idle."