October will see changes in R&D tax incentives
04 September 2012
Posted by: SAIT Technical
By Mohammed Jada and Yasmeen Suliman (Moneywebtax)
At a KPMG research and development breakfast seminar held in Durban in June this year, Godfrey Mashamba (Chief Director overseeing the incentive at the Department of Science & Technology (DST)), noted that R2bn of tax revenue has been foregone by the South African government as a result of the South African Research & Development (R&D) tax incentive.
This shows the commitment of the government to the incentive and the DST has noted its primary purpose is to encourage more South African companies to undertake innovation and to invest in R&D. It was important that South Africa have an attractive and efficiently run R&D incentive, given the fact that many countries around the world are increasingly offering such incentives to attract foreign direct investment. The benefits of having an attractive and meaningful R&D incentive are that companies become more competitive as they invest more into the improvement of their products and processes, and this can only be good for the country. Having said that, South Africa still has a lot of ground to make up if it wants to improve its current investment in R&D - South African companies estimated expenditure on R&D as a percentage of GDP amounts to less than 1% of GDP (circa R21 billion), compared to the $420 billion that the USA is currently committing to R&D!
Get ready for 1 October!
Recent legislative amendments have radically changed the way in which companies claim R&D tax incentives in South Africa. Effective from 1 October 2012, R&D tax incentives can only be claimed from the date that a pre-approval application form has been lodged with the DST. An additional 50% of eligible expenditure can be claimed as a tax deduction in this way, and this simply translates to a company having the ability to get 14cents back on every R1 spent - and this has not gone unnoticed by many companies.
A new ‘Approval Committee' will evaluate the merits of the pre-approval application, and will be staffed by members of both the DST and the South African Revenue Service (Sars). Taxpayers can only claim R&D tax incentives until 30 September 2012 without seeking any such prior approval. Importantly, the full R&D tax incentive would only apply to R&D expenditure incurred from the date that an pre-approval application has been made - so it is vital to submit pre-approval applications by 1 October 2012.
Apart from the above pre-approval requirement, the overall legislative changes are in the main welcomed, as clarity has been provided on what constitutes R&D, guidelines are in place for recoupments & third-party funding arrangements and the current restrictions against internal business process expenditure have been relaxed.