A comparative study of tax incenvites for research and developemnt between South Africa and the United Kingdom

Abstract

A countries innovative capacity is a fundamental building block in securing continued economic growth and performance whilst simultaneously stimulating the social needs of one’s citizens. A knowledge based economy can help reduce poverty and improve the overall quality of life by promoting a strong and educated workforce whilst simultaneously driving forward scientific and technological advances. Research and development initiatives are regarded the world over as being an important element of any economy. From a social perspective, it has been shown that research and development activities result in significant positive effects well beyond the specific technical and scientific outcomes that are achieved. As such governments have a particular interest in promoting innovation within the borders of their country as the results over time will lead to benefits for the entire population. With the significant variations in country specific incentives the query arises as to whether the South African incentives have been designed and implemented in a manner which is aligned with international best practice. It must further be queried whether the implementation of the incentives is appropriate for the South African trade environment and whether such incentives are likely to contribute to the national spend on R&D. This paper aims to investigate the design and implementation of South African tax incentives relating to R&D activities relative to global best practices and OECD recommendations. As targeted research and development tax incentives were only introduced in 2006 they remain a relatively new element influencing the South African fiscus and economy. They are aimed at increasing the R&D output of business enterprises across all sectors and have been highlighted as a key component of the National Research and Development Strategy. This study draws on the experience of the United Kingdom’s R&D tax incentives and aims to highlight any areas for improvement in the current South African legislation arising from this evaluation. AFRIKAANS : ‘n Land se kapasiteit om te verander is ‘n noodsaaklike vereiste om aanhoudende ekonomiese groei en prestasie te verseker. ‘n Ekonomie gebaseer op kennis kan help teen die bestryding van armoede en die algehele verbetering van die lewenskwaliteit van die bevolking deur ‘n meer opgevoede werkerskorps en wetenskaplike en tegnologiese bevordering aan te moedig. Navorsings- en ontwikkelingsinisiatiewe word wêreldwyd as ‘n belangrike element van ‘n ekonomie aanskou. Uit ‘n sosiale perspektief blyk dit dat navorsings- en ontwikkelingsaktiwiteite wel betekenisvolle positiewe uitwerkings het, wat die spesifieke tegniese en wetenskaplike kennis wat reeds verwerf is, ver ootref. Omdat ‘n regering belangstelling toon in die bevordering van nuwigheid binne die grense van hul eie land, kan die land se bevolking baat hierby vind. As gevolg van betekenisvolle verskille in ‘n land se aansporings,moet gekyk word of die ontwikkeling en instelling van Suid-Afrikaanse aansporings aanpas by internasionale neigings. Daar moet ook verder gekyk word of die instelling van hierdie aansporings geskik is vir die huidige Suid-Afrikaanse sakebedryf en of dit ‘n bydrae tot die uitgawes op nasionale navorsings- en ontwikkelingsinisiatiewe lewer. Hierdie studie beoog om die uitleg van Suid-Afrikaanse belastingsaansporings teen opsigte van navorsings- en ontwikkelingsaktiwiteite met wêreldwye neigings en OECD aanbevelings te vergelyk. Aangesien aansporings ten opsige van navorsing en ontwikkeling eers in 2006 ingestel is bly dit ‘n relatiewe nuwe element wat die Suid-Afrikaanse fiskus en ekonomie beïnvloed. Dit het ten doel om die uitgawes op navorsing en ontwikkeling van besighede in alle sektore te vermeerder en word uitgesonder as die sleutelkomponent van die nasionale navorsings- en ontwikkelingsstrategie. Hierdie studie is op die ondervindinge van die Verenigde Koninkryk se belastings aansporingsgebaseer word en sal gebiede uitwys waarin moontlike verbeteringe van Suid-Afrikaanse wetgewing van belang mag wees.