Picture: 123RF/LIGHTHOUSE
Picture: 123RF/LIGHTHOUSE

The department of science and innovation has eliminated the backlog of applications from companies seeking tax breaks for doing research and development (R&D), but the take-up remains modest, parliament heard on Wednesday.

Companies can claim a 150% tax deduction on their operational expenses for qualifying R&D activities, which, at a corporate tax rate of 28%, translates into 14c for every rand spent on R&D.

The programme was launched in 2006, aimed at encouraging companies to invest more in R&D activities to generate innovative products and services, and attract and retain skills. The scheme was switched from a retrospective application to a pre-approval process in October 2012, triggering a sharp increase in the workload facing the officials tasked with assessing applications, the department’s Godfrey Mashamba told parliament’s portfolio committee on higher education, science and technology.

“It was an issue of volume versus capacity,” he said.

At its worst, the turnaround time for applications was taking on average 18 months, creating such uncertainty for companies that it deterred firms from claiming the incentive. The backlog has since been cleared, and the average turnaround time was 94 days in 2018/2019, he told MPs. The current target is 90 days.

In total, 941 companies received support from the incentive scheme for their R&D projects between its inception in October 2006 and February 2019. These projects were worth approximately R50bn, and the majority were in the manufacturing sector, said Mashamba. Small and medium enterprises with an annual turnover of less than R40m accounted for 41.8% of the successful applicants.

The total tax revenue foregone by the fiscus as a result of the incentive scheme stood at R5.2bn, he said.

In the most recent tax year, which ended on February 28, the department received 115 applications, containing 388 projects from 91 companies, worth an estimated R3.3bn in R&D expenditure, Mashamba said.

The department has a range of other mechanisms to stimulate R&D beyond the private sector, he said. These include public-private partnerships, such as the strategic health innovation programme, which focuses on novel drug development; farmer development support to find alternative crops and develop  animal vaccines; and an agricultural bio-innovation programme that supports R&D consortiums investigating new cultivars and crop-protection methods.

The department is also working with the Treasury and the department of small business development on a new fund to support the commercialisation of business innovations.

kahnt@businesslive.co.za