DST considers R&D tax incentive report

Monday, June 27, 2016

Pretoria - The development of a simplified, streamlined process for accessing the Research and Development (R&D) Tax Incentive by companies is one of the key recommendations of the government-industry task team.

The task team was established by Science and Technology Minister, Naledi Pando,r to recommend possible improvements to the R&D Tax Incentive programme.

The review undertaken by this task team was mentioned in the National Treasury Budget Review statement issued with the Budget Speech in February 2016.

The final task team report was formally submitted to Minister Pandor in the first week of May 2016.

The Department of Science and Technology (DST) has started processing the recommendations.

The 17-member task team, headed by Prof. Anastassios Pouris, comprised representatives of R&D-performing companies from various sectors, consulting firms, industry associations, relevant government departments and agencies, academics and the policy research community.

The task team report notes that the rationale for government support for private sector R&D through the tax-based incentives is still as relevant today as it was when the 150% R&D tax deduction was introduced in 2006.

Business-sector R&D investment needs to increase if South Africa is to enhance its competitiveness and growth potential. The R&D tax incentive is one of a portfolio of policy instruments to help achieve this objective.

The other instruments include the Support Programme for Industrial Innovation (SPII) and the Industrial Innovation Partnership (IIP), as well as the grants/loans and equity support provided through the Technology Innovation Agency.

These funding mechanisms target market-ready technology development and commercialisation, while the R&D Tax Incentive promotes systematic investigative and experimental activities meant to discover and advance scientific and technological knowledge to develop and improve products and processes.

This type of support from government is necessary, given the high costs and levels of uncertainty associated with R&D.

According to the Minister, the government-industry task team report will be used as a basis for the consideration of improvements that will help reposition the R&D tax incentive as a key instrument for stimulating private-sector R&D investment.

The report identified several challenges experienced by companies with regard to the current preapproval system for accessing the incentive.

The task team is of the view that a more refined retrospective method, which will allow companies to submit detailed information of the R&D undertaken at year-end, would significantly improve the accessibility of the incentive.

The DST has initiated consultations with National Treasury to assess the feasibility of this recommendation. In principle, the two departments agree on the need for changes in order to improve efficiency.

However, the changes proposed by the government-industry task team will require further consideration and refinement, as well as several amendments to section 11D of the Income Tax Act, 1962 (Act No. 58 of 1962). 

The DST has started to develop a detailed proposal that will be used for further consultations within government and with taxpayers on how to take the matter forward.

Unfortunately, there is insufficient time to include amendments to section 11D in the 2016 Tax Laws Amendment Bill.

The DST, working with National Treasury, will provide updates when appropriate to keep stakeholders abreast of developments. – SAnews.gov.za