Issued by the Department of Science and Technology
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The application process for Government’s research and development (R&D) tax incentive programme has been expedited, with the turnaround time being reduced to 90 days. The programme was established in 2006 as an instrument to stimulate private sector investment in research and development and innovation in South Africa
Since the establishment of the R&D tax incentive programme, the process has been beset with several challenges including, administrative delays, complex information, and limited access for small and medium enterprises and start-ups, 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.
A task team established by the Minister of Science and Technology in 2015 to address bottlenecks experienced by businesses accessing the incentive. The measures included simplifying documentation and application processes and improving guidance provided to firms on how the incentive works.
In a breakfast seminar held with the private sector in Pretoria today (2 March), the Department of Science and Technology’s Chief Director for Science and Technology Investment, Godfrey Mashamba told business 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. The Task Team’s work ended in April 2016, when it adopted its final report.
“An online system of submitting applications was implemented. Besides eliminating the paper-based forms, this system should improve information managements and decisions turnaround times,” said Mr Mashamba.
Through this online system, applicants can now register, complete and application, immediately receive acknowledgement. They can also track progress up to the decision and, in the future, be able to submit progress reports on approved R&D.
By 28 February 2018, much progress has been made in processing applications; 1 212 or 95% of the 1 277 valid applications that the DST received since October 2012 had been adjudicated and 1054 (82.5%) have received decisions on their applications. Adjudication of applications received in the last two months has also commenced. This will greatly improve certainty and support planning of R&D investment by firms.
In addition, the number of small businesses applying to the programme has increased to almost 480 this financial year compared to only 331 in 2014/15.
Ms Hayley Reynolds from the National Treasury indicated that it was not feasible to increase the tax deduction rate to 150% and introducing a refundable tax credit to support SMEs, which she said would increase cost to the fiscus. These were the only two task team recommendations, which would require a major policy shift by government.
Mr Mashamba said that the DST and National Treasury continuously monitored feedback and experiences to identify possible improvements or areas that require technical clarification in law to remove ambiguity. The two meet regularly and communicate on new developments.
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,” said Ms Kubayi-Ngubane.
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.
Chairperson of the Mining Equipment Manufacturers of South Africa (MEMSA), Freddy Mugeri, welcomed the efforts to improve the programme and called for targeted marketing and administrative support for applicants and packaging of existing incentives available to the mining equipment manufacturers and other key sectors.
“It is a very competitive landscape where our members compete with international manufacturers and importers. It is through harvesting local and global IP for local manufacturing that we will grow our economy, create jobs and build a sustainable mining capital equipment and components manufacturing industry,” he said.