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R&D tax incentive applications streamlined
21 March 2018, This Week's Editor's Pick, News

The South African government has reduced the red tape required for companies to apply for a research and development (R&D) incentive, by reducing the turnaround time to 90 days.

This follows the establishment of a task team by the minister of science and technology in 2015 to address bottlenecks experienced by businesses accessing the incentive, and includes measures such as simplifying documentation and application processes and improving guidance provided to firms on how the incentive works.

The programme, which was established in 2006 as an instrument to stimulate private sector investment in R&D and innovation, has been beset with several challenges including administrative delays, complex information and limited access for small and medium enterprises and startups, hindering the private sector’s response to the programme that offers tax breaks through the South African Revenue Services (SARS) to companies investing in R&D.

In a breakfast seminar held with the private sector in Pretoria on the 2nd of March, the department of science and technology’s (DST) chief director for science and technology investment, Godfrey Mashamba, announced that government has implemented the recommendations made by the task team. The task team findings and recommendations covered a range of issues dealing with both the measures to simplify administrative processes and the policy-related matters.

“An online system of submitting applications was implemented. Besides eliminating the paper-based forms, this system should improve information management and decision turnaround times,” said Mashamba. Through this online system, applicants can now register, complete an application, and immediately receive acknowledgement. They can also track progress towards a decision, and in the future will be able to submit progress reports on approved R&D.

The DST says much progress has already been made in processing applications, citing that between October 2012 and the end of February 2018, 1212 (95%) of the valid applications received were adjudicated and 1054 (82,5%) received decisions on their applications. In addition, the number of small businesses applying to the programme increased to almost 480 this past financial year, compared to only 331 in 2014/15.

On the downside, Ms Hayley Reynolds from the national treasury indicated that it was not feasible to increase the tax deduction rate to 150% and to introduce a refundable tax credit to support SMEs, which she said would increase cost to the fiscus.

Speaking for the first time as minister of science and technology, Mmamoloko Kubayi-Ngubane said companies of any size, in any industry, could qualify for the tax incentive. “At a corporate tax rate of 28%, the incentive benefit translates into a benefit of 14 cents per Rand spent on R&D, thus reducing the marginal cost of R&D. That gesture is a reflection of the extent to which government is committed to promoting a conducive environment for business to operate,” she said.

The minister urged the business sector to take advantage of the incentive and invest more in R&D, and said one major challenge was that gross expenditure on R&D (GERD) as a percentage of the GDP remained below 1%. “That reflects an underperformance relative to our own policy targets and some comparable economies, which have gross expenditure on research and development to GDP ratio (GERD)/GDP of around 2%,” she said.

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