Tue, Apr 04, 2023 page8

• EDITORIAL: Smaller chip firms need support

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  Taking inspiration from the South Korean K-Chips Act, the government should customize legislation to protect the local semiconductor industry’s key role in global supply chains. Tax breaks should be extended to small and medium-sized businesses, rather than targeting a handful of large-scale chip manufacturers.

  South Korea last week passed the K-Chips Act to increase tax breaks from 8 percent to 15 percent for the country’s major semiconductor companies, but small and medium-sized companies were not left out and would see a tax credit increasing from 16 percent to 25 percent.

  South Korean companies this year would also get an additional 10 percent tax reduction based on their capital investment from the previous three-year average. That means large companies such as Samsung Electronics Co and HK Hynix Inc would get 25 percent tax breaks and smaller firms would get tax cuts of 35 percent.

  The tax incentives offered by Taiwan are scarcely comparable to that of Seoul. The legislature in January passed amendments to the Act for Industrial Innovation (產業創新條例), raising tax breaks from 15 percent to 25 percent of local companies’ research and development (R&D) investment.

  The government would also offer an additional 5 percent tax credit for equipment spending, but only for advanced process technology. Details and support measures are to be released in the next few months.

  However, only companies with a strategic role in supply chains and with investment in cutting-edge technology are eligible for the tax incentives. The government originally planned to set a high R&D investment threshold of NT$5 billion to NT$10 billion (US$164.2 million to US$328.4 million). Only a few big companies such as Taiwan Semiconductor Manufacturing Co, MediaTek Inc and Novatek Microelectronics Corp would be qualified to apply for the tax breaks.

  The Ministry of Economic Affairs is negotiating with the Ministry of Finance to lower the bar to NT$5 billion to NT$7 billion, but that would only expand the list of qualifying companies to 10 firms.

  The amended act is not sufficient, because small and medium-sized semiconductor companies are excluded from the tax incentives. Those companies are facing intensifying competition from China and need the government’s support as China shifts its focus and funding toward mature chip technology. With sufficient state funding, Chinese chipmakers are expected to expand 12-inch wafer output to 2.4 million units per month in 2026, international trade group SEMI said, adding that it would expand China’s market share to 25 percent in 2026 from 22 percent last year.

  As Chinese companies pose an imminent threat to local small and medium-sized chip companies, the Taiwan Semiconductor Industry Association and local chip designers last week jointly released an industry white paper urging the government to provide aid and formulate a strategic policy to safeguard the industry’s competitiveness. Local chip designers are facing a brain drain, as the government has been supporting chip manufacturing, but has no support policy for the chip-designing segment, the white paper said.

  As the semiconductor industry is considered integral to national security, countries such as the US, South Korea, Japan and EU nations are seeking to localize chip production by offering incentives.

  Taiwan should be alert about the outflow of talent and capital investment, the most important factors supporting the development of the domestic chip industry. In the race for technological supremacy, Taiwan needs a more comprehensive chip act to fend off growing competition from around the world. It is essential to support companies in the whole supply chain, rather than merely betting on big players.
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