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Tax Breaks for Korean Electronics Companies Decrease despite Increase in R&D Spending
Companies Call for Improvement in Tax System
Tax Breaks for Korean Electronics Companies Decrease despite Increase in R&D Spending
  • By Choi Moon-hee
  • November 22, 2019, 14:53
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Samsung Electronics’ Seoul R&D Campus

Korean electronics companies continue to expand their R&D investment to secure future growth engines, but the Korean government has scaled back the tax breaks for them.

According to the Financial Supervisory Service on Nov. 21, major Korean electric and electronics companies increased their R&D investment in the first three quarters of this year compared with the same period last year. Their earnings deteriorated from last year, but their R&D investment grew.

Korean chipmakers suffered a sharp fall in their earnings as the chip market deteriorated this year. But they ramped up their R&D investment.

Samsung Electronics spent 15,287.7 billion won in total on R&D by the end of the third quarter of this year. This year, its operating profit plummeted compared to the previous year, but R&D investment increased 14.6 percent from the same period last year. As a result, the proportion of R&D investment to sales increased to 9 percent this year from 7.7 percent last year.

As for SK Hynix, its operating profit dropped most sharply due to a slowdown in the global semiconductor market, but its R&D investment soared. SK Hynix cumulatively invested 2,328.1 billion won in R&D by the end of the third quarter of this year. This is a 15.5 percent increase over the same period of last year. As its sales slid due to a slowdown in the market, the portion of R&D investment rose to 11.6 percent of sales as investment increased.

LG Electronics is investing in R&D while focusing on fostering future growth engines. LG Electronics plans to invest 898.5 billion won in the vehicle components solution (VS) sector this year. It is a 27 percent increase from last year's 70 billion won. LG Display scaled up its R&D investment while implementing a restructuring after posting 937.5 billion won in operating losses in the first three quarters of this year. Its R&D investments amounted to 1,732.6 billion won in total by the end of the third quarter, up 10.2 percent from 1,571.8 billion a year before.

Companies’ investment in future growth engines has been on a steady rise but tax cuts for investment by companies, in particular, big companies dipped a great deal. This year's tax cut rates dropped significantly compared to 2013 according to the Korea Economic Research Institute's survey of tax cut rates for facility investment. The rate for energy-saving facilities has decreased to one tenth (from 10 percent to one percent) compared to six years ago, while the rate for environmental conservation facilities has dropped to three tenths (10 percent → three percent). Moreover, the rate for general R&D expenditures by large companies shrank from three to six percent in 2013 to zero to two percent last year, arriving at one third in five years. Korea's tax support for companies’ R&D ranks 27th among 36 countries in the OECD, the Korea Economic Research Institute explains.

As a consequence, industrialists are raising their voices for improvements in the tax system, such as tax support for facilities and machinery and the reintroduction of the temporary investment tax credit.