Department of Science and Technology – Research and Development update session
On Friday we attended a meeting with the newly appointed Minister of Science and Technology (Ms Mmamoloko Kubayi-Ngubane) to discuss the Research and Development Tax Incentive.
The Minister stressed the need to carry on from the good work of former Minister Pandor as well as the need to carry on dialogue to ensure successful utilisation of the incentive. The Minister acknowledged the relatively low spend on R&D as a percentage of GDP and discussed a new white paper being worked on by the Ministry on technology and innovation. It is key for South Africa to increase the spend on R&D and the tax incentive plays a major role in assisting the private sector to achieve this.
The following key statistics were also released by the DST as at 28 February 2018:
· 1,212 (or 95%) of the 1,277 applications for the R&D Tax Incentive received since 2012 have been adjudicated.
· Of these, 1,054 (or 82.5%) applications have already received outcomes.
· The average turnaround times for pre-approval applications have decreased from an average of 17 months for the period 2012 – 2015, to 8 months in 2016 and 4 months since January 2017 to date.
· Although the number of applications per year has decreased since 2012, the number of SME companies applying for the tax incentive has increased from 36% to 44%.
The meeting then discussed the work of the task team that had put forward recommendations for the improvement of the incentive in 2016. National Treasury and the DST have been working together on these recommendations and have grouped them into 4 areas. Below are the highlights that were discussed on each area:
1. Simplifying the procedure – there is now an appeals process that has been incorporated into the process and the turnaround time for approvals has been drastically reduced. The aim is to reach a turnaround time of 90 days on all applications.
2. Improving the pre-approval process – Although the task team recommended a move away from the pre-approval process, at the moment, the pre-approval process will remain to assess how it works with no backlogs.
3. Catch up on claims – The task team recommended allowing claimants to claim prior years expenditure in current years. This was not completely adopted as the amendment that was made allows for companies to reopen returns even after prescription if the approval comes late from the DST.
4. Policy Issues – This was the big one – Treasury has said that due to fiscal constraints, they are not increasing the incentive from the additional 50% and they will not allow for a refundable type benefit for SMEs. There will be some tweaking of the innovation criteria as well as the “internal business process exclusion” in the next round of draft tax legislation to provide greater clarity.
It was great to see how engaged the new Minister was in the incentive and hopefully this will bode well for potential necessary changes going forward. We at Catalyst are still of the opinion that in order to increase spend on R&D in South Africa, this incentive needs to be one that does more to attract private sector participation.