South Korea’s Semiconductor Boom Flips Tax Relief Balance: Big Business Set for approximately $18.3 Billion in Cuts Next Year, First Time Above All SMEs Combined — BigGo Finance

National tax relief benefiting companies subject to mutual investment restrictions (large business groups) is expected to approach 24.6 trillion won (approximately $18.3 billion) next year, surpassing relief for all small and medium-sized enterprises combined for the first time. It marks the first such reversal since 2020, when South Korea began tallying relief beneficiaries by company size. According to the 2027 Tax Expenditure Budget submitted by South Korea’s Ministry of Economy and Finance to the National Assembly, national tax relief accruing to companies subject to mutual investment restrictions will total 24.5871 trillion won (approximately $18.2 billion) next year, 2.3 times this year’s 10.7762 trillion won (approximately $8.0 billion). Relief for SMEs, by contrast, will rise only 2.1%, from 20.3421 trillion won (approximately $15.1 billion) to 20.7745 trillion won (approximately $15.4 billion). In just two years, the relief scales for large companies and SMEs have flipped. The pace of the reversal is steep. Relief for companies subject to mutual investment restrictions hovered around 3.9 trillion won (approximately $2.9 billion) in 2022 and 4.3 trillion won (approximately $3.2 billion) in 2025, effectively flat, before jumping in steps to around 10.8 trillion won (approximately $8.0 billion) this year and 24.6 trillion won (approximately $18.3 billion) next year. Over the same period, SME relief rose only modestly, from around 16.1 trillion won (approximately $11.9 billion) to around 20.8 trillion won (approximately $15.4 billion). Large companies’ share of total corporate relief will triple from 16.0% in 2025 to 49.9% next year. From 2022 through next year, the average annual growth rate for companies subject to mutual investment restrictions is 44.6%, more than eight times the 5.2% for SMEs. Their share of overall national tax relief will expand from 6.1% in 2022 to 23.4% next year. With total national tax relief estimated at 104.9 trillion won (approximately $77.8 billion) next year—the first time above 100 trillion won—nearly a quarter of that will go to large companies. Note: 2027 figures are government forecasts. The National Assembly Budget Office has presented a separate estimate. The structure of the credits explains the surge. The two largest relief items next year—the Integrated Investment Tax Credit (16.6 trillion won, approximately $12.3 billion) and the R&D and Personnel Development Tax Credit (10.5 trillion won, approximately $7.8 billion)—cut taxes in proportion to investment and research spending, respectively. Companies that spend more on facilities and R&D inevitably reap bigger benefits. The Integrated Investment Tax Credit balloons from around 2.5 trillion won (approximately $1.9 billion) in 2025 to 6.7 times that in two years. Semiconductors are designated a national strategic technology, carrying the highest credit rate, and the rate was recently raised further. As the semiconductor boom drove large-scale facility investment and R&D spending, relief tilted toward large companies. The government attributes the rise in large-company relief to improved corporate earnings amid favorable semiconductor conditions. These two credits alone account for about 32% of next year’s top 20 relief items. By contrast, special provisions aimed at SMEs, such as the Special Tax Reduction for SMEs (around 2.4 trillion won, approximately $1.8 billion), are relatively small and show no big swings year to year. The structure is becoming entrenched: the better the investment climate, the wider the relief gap between large companies and SMEs.

Whether these figures will materialize as projected is uncertain. Large-company relief forecasts have a track record of diverging sharply from actual results. In 2024, relief was forecast at around 6.6 trillion won (approximately $4.9 billion), but actual results came in at around 2.3 trillion won (approximately $1.7 billion). This year, a forecast of around 4.7 trillion won (approximately $3.5 billion) swelled to a provisional 10.8 trillion won (approximately $8.0 billion). The National Assembly Budget Office estimated next year’s relief from the two credits at about 2.4 trillion won (approximately $1.8 billion) lower than the government, citing the fact that amounts blocked by the minimum tax can be carried forward for up to 10 years. Under that forecast, total national tax relief next year would also be about 2.6 trillion won (approximately $1.9 billion) less than the government expects, at 102.3 trillion won (approximately $75.9 billion). Nevertheless, the government submitted an amendment to the National Assembly—without a preliminary feasibility study—that multiplies the two credits by a regional preferential coefficient (1.0 to 1.5). Under the structure, businesses outside the capital region would see support rise by up to 50%. The National Assembly Budget Office called for a review, saying the system “is being introduced without sufficient prior verification of its effectiveness, despite entailing additional tax expenditures.” The reversal also bears on the qualitative composition of the revenue base. Fueled by the semiconductor boom, corporate tax revenue is surging, and next year’s national tax revenue is estimated at 584.4 trillion won (approximately $433.6 billion), up 105.8 trillion won (approximately $78.5 billion) from this year’s revised estimate of 478.6 trillion won (approximately $355.1 billion). But corporate tax is sensitive to economic cycles, limiting its use as a stable revenue base. Corporate tax filings rose from 42.3 trillion won (approximately $31.4 billion) in 2020 to 55.5 trillion won (approximately $41.2 billion) in 2021 and 87 trillion won (approximately $64.6 billion) in 2022, then plunged to 60.4 trillion won (approximately $44.8 billion) in 2023 and 39.4 trillion won (approximately $29.2 billion) in 2024, before rebounding to 60.9 trillion won (approximately $45.2 billion) last year and 110.9 trillion won (approximately $82.3 billion) this year. That means revenue growth cannot be guaranteed if the semiconductor cycle turns. Adding to the burden, mandatory spending is expected to rise rapidly as the population ages. According to the National Assembly Budget Office’s long-term fiscal outlook, mandatory spending will increase by 344 trillion won (approximately $255.3 billion), or 93.5%, from 368 trillion won (approximately $273.1 billion) in 2025 to 712 trillion won (approximately $528.3 billion) in 2050. Welfare-related mandatory spending will grow faster, rising 206.2 trillion won (approximately $153.0 billion), or 111.3%, from 185.3 trillion won (approximately $137.5 billion) to 391.5 trillion won (approximately $290.5 billion) over the same period. In the end, the concentration of relief reads not as a simple tax statistic but as a gauge of the direction of future fiscal management. The circular structure is becoming clearer: credits meant to spur investment concentrate on large companies during booms, while the revenue base itself wobbles during downturns. In the National Assembly review, debate is expected to continue over the effectiveness of the credit-rate increase and the regional preferential coefficient, and over whether carried-over credits are properly reflected.…Read more by BigGo Finance