The Korea Telecommunications Operators Association (KTOA), along with 38 other IT organizations, has reportedly asked the South Korean government for tax incentives for data centers built in the metropolitan area.
According to ChosunBiz, KTOA and the other organizations have submitted a request to the country's Ministry of Strategy and Finance to amend the enforcement decree of the Restriction of Special Tax Treatment Act to include metropolitan data centers among the infrastructure investments that would qualify for tax deductions.
Under the Restriction of Special Tax Treatment Act, AI and cloud companies can receive tax credits for 20% to 30% of research and workforce development expenses and 3% to 12% of facility investment costs.
AI and cloud businesses have been designated as new growth technologies.
However, ChosunBiz reported that facilities located in metropolitan areas such as Seoul and Gyeonggi are excluded from the tax credit to prevent the over-concentration of major infrastructure in the metropolitan area. This infrastructure includes data centers.
Disconnected from reality
Citing industry insiders, the report said the provisions of the Restriction of Special Tax Treatment Act are "disconnected from the reality faced by IT companies," estimating that 70% of data centers in the country are located in metropolitan areas.
Despite the government's push to encourage new infrastructure development outside major cities, the data centers of telecom operators and Internet service providers such as SK Telecom, KT, LG Uplus, Naver and Kakao, are mostly located in the Seoul and Gyeonggi areas, with some exceptions in Busan, Daegu and Chuncheon.
Similarly, IT companies in the country have also built data centers close to their headquarters in the metropolitan area.
According to ChosunBiz, industry insiders believe that telcos cannot immediately avail themselves of the tax reductions particularly for new data centers built outside the metropolitan area.
The new data centers will "take at least three years to become operational," the report said.
In urging the government to provide tax relief for urban data centers, the KTOA and its technology peers cited provisions under the current law that allow certain "business-use fixed assets" such as broadcasting equipment, exchange facilities, transmission facilities and information processing facilities to qualify for tax reductions, even if they are located in the metropolitan area.
The KTOA and the other 38 IT organizations have reportedly asked the Ministry of Strategy and Finance to revise the enforcement decree to include data centers in the definition of "information processing facilities."