South Korea's AI profit tax proposal triggers market chaos as Samsung, SK Hynix boom

South Korea floats AI profit social tax as tech giants boom

Seoul (AFP) - A top South Korean official has proposed a tax on AI profits to be redistributed among society as a semiconductor boom drives massive earnings for tech giants Samsung Electronics and SK hynix. The two South Korean firms have emerged as key suppliers of high-performance chips powering AI infrastructure globally, posting record first-quarter earnings as global demand surges. South Korea's benchmark Kospi has rallied over the past month, repeatedly hitting record highs and also briefly coming within a whisker of the key 8,000-point mark Tuesday. South Korea was no longer operating as a traditional export economy and could be shifting towards a "technology monopoly economy" driven by scarcity of chips and sustained excess profits, Kim Yong-beom, senior presidential secretary for policy, said in a Facebook post late Monday. While the shift towards a technology-dominant economy represented "the core essence of the possibilities currently open before Korea", Kim warned it could also deepen polarisation of society. Kim proposed what he tentatively called a "national dividend" for socially redistributing excess corporate profits from AI technology. Among other things, the tech tax could be used to provide startup support for young people, basic income programmes for rural and fishing communities, support for artists and stronger pensions for the elderly, he said. "Using a portion of excess profits to ensure social stability for the current generation and mitigate transition costs is not merely redistribution, but also a type of system maintenance cost," he said. A global frenzy to build AI data centres has sent orders for advanced, high-bandwidth memory microchips soaring. South Korea has said it will triple spending on artificial intelligence this year, aiming to join the United States and China as one of the top three AI powers. Kim's remarks came as Samsung Electronics' labour union demanded the removal of caps on performance bonuses and called for a system allocating 15 percent of operating profit to bonuses. The union is scheduled to hold post-mediation talks with management on Tuesday. Calls within the country's ruling Democratic Party to redistribute gains from the semiconductor boom have also emerged publicly. Lawmaker Moon Geum-ju said last month that the semiconductor boom was built partly on "the sacrifice and patience of farmers and fishermen" and argued that part of the profits should be returned to rural communities.

South Korea official floats AI profit social tax as tech giants boom - The Economic Times

A top South Korean official has proposed a tax on AI profits to be redistributed among society as a semiconductor boom drives massive earnings for tech giants Samsung Electronics and SK hynix. Kim proposed what he tentatively called a "national dividend" for socially redistributing excess corporate profits from AI technology.A top South Korean official has proposed a tax on AI profits to be redistributed among society as a semiconductor boom drives massive earnings for tech giants Samsung Electronics and SK hynix. The two South Korean firms have emerged as key suppliers of high-performance chips powering AI infrastructure globally, posting record first-quarter earnings as global demand surges. South Korea's benchmark Kospi has rallied over the past month, repeatedly hitting record highs and also briefly coming within a whisker of the key 8,000-point mark Tuesday. South Korea was no longer operating as a traditional export economy and could be shifting towards a "technology monopoly economy" driven by scarcity of chips and sustained excess profits, Kim Yong-beom, senior presidential secretary for policy, said in a Facebook post late Monday. While the shift towards a technology-dominant economy represented "the core essence of the possibilities currently open before Korea", Kim warned it could also deepen polarisation of society. Kim proposed what he tentatively called a "national dividend" for socially redistributing excess corporate profits from AI technology. The tech tax could be used, for example, to provide startup support for young people, basic income programmes for rural and fishing communities, support for artists and stronger pensions for the elderly, he said. "Using a portion of excess profits to ensure social stability for the current generation and mitigate transition costs is not merely redistribution, but also a type of system maintenance cost." The presidential Blue House said Kim's post reflected "his personal opinion". The post was "unrelated to any internal discussions or review within the Blue House", it said in a statement sent to AFP. A global frenzy to build AI data centres has sent orders for advanced, high-bandwidth memory microchips soaring. South Korea has said it will triple spending on artificial intelligence this year, aiming to join the United States and China as one of the top three AI powers. Kim's remarks came as Samsung Electronics' labour union demanded the removal of caps on performance bonuses and called for a system allocating 15 percent of operating profit to bonuses. The union is scheduled to hold post-mediation talks with management on Tuesday. Calls within the country's ruling Democratic Party to redistribute gains from the semiconductor boom have also emerged publicly. Lawmaker Moon Geum-ju said last month that the semiconductor boom was built partly on "the sacrifice and patience of farmers and fishermen" and argued that part of the profits should be returned to rural communities.

South Korea's radical 'AI dividend' proposal: A bold future or a market nightmare?

A senior South Korean policy official has sparked intense debate and a dramatic stock market swing by floating the idea of paying citizens a share of the economic windfall generated by artificial intelligence, spotlighting mounting pressure to more broadly distribute the enormous wealth flowing to chipmakers like Samsung Electronics and SK Hynix. The proposal, floated in a Facebook post by Kim Yong-beom, the presidential policy chief, sent the country's benchmark Kospi index on a vertiginous journey Tuesday. The index tumbled as much as 5.1% as investors scrambled to understand what the suggestion might mean in practice, before recovering much of that ground after Kim clarified he was thinking about redistributing surplus government tax receipts from AI-driven growth -- not imposing a new direct levy on corporate windfall profits. Samsung and SK Hynix shares clawed back most of their initial declines. The episode reflects a widening conversation among economists and policymakers about whether the artificial intelligence revolution is concentrating wealth too narrowly. In South Korea, that anxiety has translated into public demands that the companies sitting atop the global AI hardware boom share more of their extraordinary gains with workers and citizens alike. The numbers driving this conversation are staggering. Samsung's operating profit surged roughly 48-fold in the first quarter of the year, putting it on track to overtake Apple and Alphabet and trail only Nvidia among the world's most profitable technology firms. SK Hynix is expected to generate around 239 trillion won in profit this year. "This reflects a broader desire among Asian economies to signal shared ownership in a digitalized, AI-powered future," said Christy Tan, senior investment strategist at Franklin Templeton Institute, speaking to Bloomberg Television. She noted that because Kim's proposal draws on existing tax surpluses rather than new corporate taxes, residents may still worry they could end up bearing the cost indirectly. The specifics of the proposal in terms of how large any payments might be, who would qualify, and how exactly the program would operate remain undefined. Even so, markets responded sharply. Tuesday's violent price swings reflect how fragile confidence has become after a breathtaking rally. The Kospi had risen nearly 86% through Monday, and while bullish forecasts remain common -- some Wall Street strategists have set a target of 10,000 for the index -- overseas investors have been net sellers in recent weeks. "How quickly the market fell tells you how on edge investors are," said Homin Lee, strategist at Lombard Odier Singapore. He noted that once Kim walked back the windfall tax interpretation, sentiment began to stabilise. The index's vulnerability also reflects the extraordinary degree to which its performance depends on just two names. Samsung and SK Hynix have each more than doubled in price this year and are drawing in a disproportionate share of market liquidity, leaving the broader index susceptible to sharp reversals, according to Yoon Joonwon, a fund manager at DS Asset Management. Kim advises President Lee Jae Myung, whose government has made "inclusive" growth a central theme, with particular emphasis on raising household incomes, nurturing startups, and supporting smaller businesses and regional economies. The policy debate is playing out against a backdrop of labour tensions at Samsung itself. On Tuesday, the company and its union entered the final round of government-brokered wage talks aimed at preventing a strike that could disrupt operations at the world's largest memory chip producer. Last month, tens of thousands of demonstrators gathered near Samsung's flagship chip campus to demand that workers receive a larger cut of the profits the AI boom has generated. The union is seeking 15% of operating profit for chip-division employees, and has threatened an 18-day walkout beginning May 21. Workers have pointed to rival SK Hynix, which last year pledged to channel 10% of annual operating profit into employee performance bonuses, as a benchmark for what they believe they deserve. Also read: PM Modi doesn't want you to buy gold for next 1 year. A bigger crash on the cards? In his post, Kim argued that the structural dynamics of the AI era make redistribution a matter of necessity. Profits, he wrote, naturally pool around memory companies, top engineers, and asset owners, while large segments of the middle class benefit only indirectly, if at all. (Inputs from Bloomberg) (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)