As global competition in advanced industries intensifies, the South Korean government's policy support and legislative actions are failing to keep pace with industry needs, increasing the burden on companies. While major countries like the United States and China are expanding tax incentives and subsidies to protect their domestic industries, delays in establishing support systems in South Korea are causing difficulties for companies in securing investment and formulating production strategies.
According to reports from the National Assembly and industry sources on November 11, a legislative proposal aimed at supporting funding for semiconductor fab expansions, known as the amendment to the National Advanced Strategic Industry Act, has yet to pass through the National Assembly. Given the current legislative schedule, it is unlikely to be processed by the end of the year.
The amendment allows semiconductor companies to pay for new factory construction costs in installments rather than in a lump sum. Companies can establish joint ventures with external investors, including government funds, to raise capital for building factories and equipment, which they would then lease, significantly reducing the initial financial burden, as constructing a single fab can cost tens of trillions of won.
A major obstacle is the holding company regulations. Under current fair trade laws, a holding company's subsidiary must own 100% of the shares when establishing a new subsidiary, making joint ventures with external investors impossible. The amendment proposes to relax the joint venture ownership requirement to 50% for investments in advanced industries outside the capital region and exempts leasing companies from being classified as financial institutions. If this special provision is applied to SK Hynix, a subsidiary of SK Group, it could greatly alleviate the investment burden for the 400 trillion won semiconductor cluster in the Honam region.
The timeline for legislative review remains uncertain. The government plans to finalize the fab layout for the Honam semiconductor cluster this month and aims to begin operations of the first line by 2030. However, if funding plans extend into the next year, it could complicate the schedule for permits in 2027 and the construction of the first phase of the fab in 2028-2029.
The electric vehicle industry is also facing challenges in securing domestic production competitiveness due to delays in government support measures. As the market presence of Chinese electric vehicles expands, tax incentives for production facilities remain under discussion in the National Assembly.
A proposed amendment to the Restriction of Special Taxation Act aims to provide tax benefits for domestically produced electric vehicles, but discussions about the scope and eligibility of support are ongoing. The government proposal includes a new domestic production tax credit based on the income tax or corporate tax proportional to the sales of eligible items produced and sold domestically. In contrast, an amendment proposed by Democratic Party lawmaker Lee Un-joo includes provisions for tax credits for vehicles produced domestically and exported.
If tax benefits are only provided for vehicles sold domestically, exported electric vehicles would be excluded from support. Hyundai Motor Group has set a goal to increase its annual domestic electric vehicle production to 1.51 million units by 2030, with plans to export 920,000 units, accounting for 61% of its production. Analysts warn that if the tax credit aimed at encouraging domestic production applies only to domestic sales, the support effect for export-oriented production facilities could be limited.
* This article has been translated by AI.
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