Business slow to tap R&D fund

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South African industrialists have been slow to take up the government’s offer of a 150% tax rebate on their research and development (R&D) operational expenditure.

Only 80 companies applied for the R&D Tax Incentive Programme introduced by the Department of Science and Technology in November 2006, the Democratic Alliance says.

The department’s first report on the programme – which was tabled in parliament this week – reveals that the tax rebate due to the 80 applicant companies whose R&D expenditure complied with the terms of the incentive programme amounts to R99.6 million.

“This indicates that this incentive programme – designed to raise private-sector expenditure on R&D to 1% of GDP by the end of 2008 – has failed to capture the imagination of South Africa’s industrial sector,” DA shadow deputy S&T minister Marian Shinn said in a statement.

“This incentive programme is a rare opportunity for the sector to invest in innovation and new product development to lead the charge to economic recovery, global competitiveness and sustainable job creation.”

Shinn adds the department acknowledges that the programme has been slow to get off the ground and has embarked on promotional activities to increase public awareness of it.

The expenditure on R&D by the private sector for the year ended 2007 was 0.89% of GDP – and this was before the bite of the economic recession was felt in the R&D laboratories.

The department’s new target of R&D expenditure reaching 2% of GDP by 2018 is ambitious and only achievable if industrialists rapidly take the opportunity to invest in innovation to grow the economy, Shinn adds.

South Africa spends proportionately more on R&D than some lower and middle-income countries. Brazil is close with 0.82% but China is ahead with 1.42% and Russia with 1.08%.

Most developed countries invest between 2,5% and 3% of their GDP in R&D.

In 2006 Japan spent 3,3% and Finland 3,45%.

“While South Africa, as a developing nation, cannot realistically be compared with these countries, it is important to realise that many of our industrial innovations and product developments are internationally competitive and can spearhead economic recovery in tough times,” Shinn says.

The department’s report on the tax incentive scheme shows that, between them, the 80 firms that qualified for tax relief spent R764 million in operational and capital R&D expenditure between November 2006 and September 2008. During this timeframe they turned over R21.8 billion.

The 150% tax deduction applies to actual expenditure incurred on eligible activities. Assets – such as buildings, plant and machinery – are eligible for accelerated depreciation over three years.

Of the R687 million operational R&D expenditure by these 80 firms during the two-year period up to R39.6 million was incurred because of the tax incentive.

“This proves that, given the motivation and support, South African entrepreneurs are eager to expand their operations to create market opportunities and jobs.”



Most of the companies (56%) that took advantage of the tax incentive scheme are in the field of chemical sciences, followed by industrial sciences (23%).