It took a while, but the national treasury has finally offered the private sector a real incentive to commit funds to research & development (R&D).
In last month's budget, finance minister Trevor Manuel raised the tax credit on R&D activities from 100% to 150%. This means that where companies once claimed back 36c on every rand spent on R&D (assuming a corporate tax rate of 36%), now they are able to claim back an additional 18c on that 36c.
Assuming private-sector R&D spending of about R7bn, this translates into a R1,2bn windfall for companies engaged in R&D activity.
"The critical issue in the economy is growth," says Marjorie Pyoos, the department of science & technology's group executive for government-sector programmes and co-ordination. "Spending on R&D is a productive investment - it generates growth in and of itself."
Manuel announced a second bonus too. R&D plant and capital equipment can now be depreciated over three years rather than four. "With the pace at which technology is advancing and equipment becomes obsolete, this is good news," says Pyoos. Companies with large R&D budgets, like Sasol, Altech and De Beers, stand to gain significantly.
"This makes it more attractive for companies to invest in R&D," says Sasol group corporate affairs manager Andre Botha, "especially if viewed against the background of Sasol's annual R&D operational budget of R400m and capital expenditure of about R100m/year on pilot plants and equipment."
But the tax is not just focused on large-scale research. Though roughly 80% of private-sector research is done by large companies, the department of science & technology (DST) hopes this intervention will lead to participation by small companies. "We would like to see about 40% of private-sector research completed by small companies by about 2014," says Pyoos.
This is part of the DST's strategy to boost national R&D spending to 1% of GDP.
Until now, the DST has dedicated resources through the provision of university research chairs and large, government-driven programmes such as biotechnology. However, "the private sector invests more in R&D than the public sector," says Pyoos, "and as research spending moves closer to 1% we would like this balance to remain; that keeps it sustainable."
The SA Revenue Service, the treasury, the DST and the department of trade & industry are preparing guidelines on what qualifies as R&D expenditure.
