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Research tax incentive may be resurrected

01 March 2016   (0 Comments)
Posted by: Author: Amanda Visser
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Author: Amanda Visser (Moneyweb)

It can work if SA learns from jurisdictions successful in increasing their research expenditure – Duane Newman.

The task team which was established to resurrect government’s flawed research and development tax incentive, has already drafted recommendations to fix the problems.

Finance Minister Pravin Gordhan referred to the team in his 2016 Budget Review, saying the proposals, which will most probably be presented to government next month, will be considered to enhance the incentive.

South Africa is lagging behind most global innovation indexes. Although it has set an ambitious research and development expenditure target of 1.5% of gross domestic product (GDP), actual expenditure remains around 0.76%.

The Department of Science and Technology (DST) published draft guidelines in October last year, but they were met with severe criticism from several stakeholders. This led to the establishment of the task team.

Darren Margo, patent attorney at Margo Attorneys, says the guidelines, despite being three years overdue, are "fatally flawed”.

He says the two sets of guidelines are in conflict with the Patents Act, Designs Act and Copyright Act. It seems the new guidelines will make the pre-approval process even more challenging.

Duane Newman, director of Cova Advisory, does not believe the guidelines are at fault. DST Minister Naledi Pandor has realised that the incentive is not working optimally.

"The main flaw in the process is the pre-approval requirement. This needs to be removed so actual research and development that is done, is assessed against the criteria. The current process of trying to assess future research and development is just unrealistic,” says Newman, who also heads the South African Institute of Tax Professional’s tax incentive committee.

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This article first appeared on moneyweb.co.za.


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