Pevita Pearce
As the global artificial intelligence computing revolution accelerates, the semiconductor industry has solidified its position as the cornerstone of national resilience and technological competitiveness. Taiwan’s dominance in this sector is no longer viewed merely as a result of manufacturing prowess but as the product of a highly integrated value chain that relies on a delicate balance of stable energy, elite talent, and forward-looking policy. However, as the industry pushes toward leading-edge nodes and large-scale AI deployment, structural constraints are becoming more pronounced. A leading industry committee has issued a comprehensive set of recommendations, urging coordinated public-private action to ensure Taiwan remains a critical platform in the global digital economy.
The urgency of these recommendations comes at a time when Taiwan’s "Silicon Shield" faces unprecedented pressure from both internal infrastructure limits and external geopolitical shifts. To sustain its competitive edge, the committee identified four strategic priorities: securing energy resilience, intensifying the hunt for global talent, refining research and development (R&D) tax incentives, and pivoting toward a distributed "edge AI" model.
The Energy Crisis: Transitioning from Stability to Resilience
The semiconductor industry and its expansive value chain are the primary engines of Taiwan’s economic security. However, the energy-intensive nature of AI-driven computing is projected to push electricity demand to historical highs by 2028. Industry experts warn that the current trajectory of Taiwan’s power system may not be sufficient to support the next generation of 2nm and 1.4nm fabrication plants, which require exponentially more power than previous iterations.
Taiwan’s current energy mix is heavily reliant on imported liquefied natural gas (LNG), which has overtaken coal as the primary source of power generation. While LNG is a cleaner alternative to coal, it introduces significant geopolitical risks. Taiwan currently operates with a relatively thin buffer for gas reserves compared to other major Asian economies. While Japan and South Korea maintain extensive storage capacities and diversified receiving infrastructure, Taiwan’s storage levels are often measured in days rather than months, leaving the island vulnerable to supply disruptions or maritime blockades.
To mitigate these risks, the committee recommends a three-pronged approach to energy security. First, the government must accelerate the construction of LNG receiving terminals. Capacity constraints at existing terminals currently limit the ability to expand imports and build strategic reserves. Second, there is a call for legislative reform. By amending Article 31 of the Natural Gas Industry Act, the government could establish clear, enforceable statutory minimum LNG stockholding requirements, moving away from flexible administrative measures toward a more rigid security framework.
Furthermore, the industry is calling for greater predictability in electricity pricing. Volatility in energy costs creates significant hurdles for long-term industrial budgeting. By providing advance notice of rate adjustments, the government can help firms maintain operational stability amid the transition to more expensive green energy sources.
Redefining Renewable Energy as a Strategic Resource
The push for renewable energy in Taiwan is no longer just an environmental goal; it is a national security imperative. Domestically generated power, such as offshore wind and solar, provides a layer of protection against fuel import disruptions. The committee suggests that the government reframe its renewable energy policies to prioritize "energy resilience" alongside carbon reduction targets.
Currently, the rollout of renewable energy has faced hurdles, including land-use conflicts, environmental review delays, and high procurement costs. To address this, industry leaders are advocating for a cross-ministerial coordination mechanism at the Executive Yuan level. This body would be tasked with aligning grid development, environmental standards, and national security interests to ensure that renewable energy targets are not just aspirational but achievable.
Crucially, the committee notes that green electricity remains prohibitively expensive for many small and medium-sized enterprises (SMEs) within the semiconductor supply chain. They recommend that regulatory requirements be calibrated based on actual domestic supply availability to avoid placing a disproportionate financial burden on the very companies Taiwan seeks to protect.
The Global Talent War: Enhancing Tax Competitiveness
While Taiwan’s manufacturing capabilities are world-class, the industry faces a looming demographic crisis. A shrinking domestic workforce and intense global competition for AI and semiconductor engineers have made international recruitment a top priority. While the "Employment Gold Card" program has been successful in attracting thousands of foreign professionals, industry leaders argue that current tax incentives are too short-lived to ensure long-term retention.
Under the current Act for the Recruitment and Employment of Foreign Professionals, tax benefits are generally limited to a five-year period. In contrast, countries like Italy have implemented "5+5" frameworks, which allow for extensions based on factors like continued employment or family relocation. The committee suggests that Taiwan should benchmark its tax regime against international peers like the Netherlands and Spain, which offer preferential flat rates or partial exemptions for qualifying high-skilled workers.
Beyond base salary, the committee is pushing for a reform of equity-based compensation. Article 19-1 of the Industrial Innovation Act currently provides for stock-based incentives, but caps and rigid taxation timing often diminish their value as a retention tool. By increasing the flexibility of these mechanisms, Taiwan can better align its compensation structures with the global standards seen in Silicon Valley and other tech hubs.
Refining the "Taiwanese Chip Act": Article 10-2 Reform
In 2023, Taiwan implemented Article 10-2 of the Industrial Innovation Act, often referred to as the local version of the "Chips Act." The legislation was designed to encourage R&D and advanced equipment investment through significant tax deductions. However, implementation regulations have introduced dual thresholds—minimum R&D expenditure and a specific R&D-to-revenue intensity ratio—that have created unintended barriers.
The core issue lies in the volatility of revenue. A company may commit to a massive, long-term R&D project, but if its revenue spikes in a particular year, its "R&D intensity" (the percentage of revenue spent on R&D) might drop below the eligibility threshold, even if its absolute spending increased. This creates a "success penalty" where high-growth firms are disqualified from incentives precisely when they are most successful.
The committee argues that the policy’s intent is to reward the investment of resources into cutting-edge technology. They recommend decoupling the intensity ratio from the absolute expenditure requirement or providing a "grace period" for firms that fall slightly short due to macroeconomic fluctuations. This would provide the predictability necessary for firms to commit to the decade-long development cycles required for next-generation semiconductors.
The Shift to Edge AI: A New National Strategy
As AI applications move beyond massive, centralized data centers, a new frontier is emerging: Edge AI. This involves performing AI inference directly on devices—such as laptops, industrial robots, and autonomous vehicles—rather than sending data back to the cloud.
The committee emphasizes that Taiwan must adopt a "cloud-to-edge" hybrid strategy. While centralized cloud training is essential for developing large language models, Edge AI offers several strategic advantages for Taiwan. First, it reduces the immense pressure on the power grid and network bandwidth by distributing the computational load. Second, it enhances data security and responsiveness, which is critical for industrial and military applications.
To lead in this space, industry leaders recommend integrating distributed AI architectures into national flagship programs like the "Chip-based Industrial Innovation Program." This includes treating AI-capable end-user devices, such as high-performance PCs and workstations, as part of the national AI infrastructure. By incentivizing the adoption of Edge AI among SMEs and the public sector, Taiwan can build a more resilient and versatile digital ecosystem.
Geopolitical Alignment and Supply Chain Security
The final pillar of the committee’s recommendations focuses on international cooperation, particularly with the United States. Through frameworks like the U.S.-Taiwan Economic Prosperity Partnership Dialogue (EPPD), Taiwan has the opportunity to deepen collaboration in semiconductors, drones, and robotics.
The committee urges the Ministry of Economic Affairs to engage in more structured consultations with industry players to inform program design. This includes the development of high-quality traditional Chinese-language datasets for AI training—a move that would ensure Taiwan’s AI models are culturally and linguistically accurate while remaining independent of datasets influenced by external political agendas.
Furthermore, as supply chain diversification becomes a global trend, the committee suggests that Taiwan should leverage its overseas manufacturing partnerships to promote "trusted and secure" AI technology ecosystems. This would position Taiwan not just as a contract manufacturer, but as a standard-setter for security and reliability in the global AI supply chain.
Conclusion: Reinforcing the Platform of the Digital Economy
The challenges facing Taiwan’s semiconductor and AI sectors are structural and interconnected. Energy security is required for manufacturing, talent is required for innovation, and smart policy is required to tie them all together. By addressing the constraints of the power grid, the limitations of the current tax code, and the evolving nature of AI architecture, Taiwan can reinforce its role as a global leader.
The committee’s findings serve as a roadmap for the government to move beyond incremental adjustments toward a comprehensive, forward-looking strategy. If Taiwan can successfully navigate these transitions, it will not only protect its economic engine but also cement its status as an indispensable partner in the global digital future. The window for action is narrow, as other nations—from the United States to Japan and the European Union—race to build their own semiconductor ecosystems. For Taiwan, the path forward lies in transforming its current strengths into a resilient, sustainable, and globally integrated technological fortress.
Raul Delapena Setiawan
Laily UPN
