Research and development companies missing out on government grants

South Africa’s Department of Science and Technology has offered incentives meant to encourage research and development (R&D) since 2007. Few technological companies have however applied for them, according to reports.

In 2008, the department of science and technology started a 10-year innovation plan in an effort to move South Africa’s economy to a more knowledgeable level with key focus on increasing investment in the R&D sector.

Tax incentives, which were created under the stated plan, permits companies that have invested in successful R&D activities to claim a 150 percent tax deduction instead of the normal 100 percent. This in turn brings a cash benefit of 14 percent meaning for every R1m ($120,300) a company makes on research activities there are entitled to claim R140 000 ($16,842) form the government.

Catalyst Solutions, a company specialising in assisting other establishments to access grants and tax incentives, said only a few of the R&Ds carried out by Africa-based companies get returns from the tax man under the programme .

The firm’s managing director Dov Paulch said poor advertising along with some “grey areas” were some of the reasons making it difficult for the technology department to be successful, adding that only a slight percentage of Research activities in South Africa are being channelled through the incentive.

The incentive is available to companies making any innovative, scientific or technological innovation such as software.

An annual report for 2009/10 financial year from the Department of science and technology stated that it received only 116 applications related to R1 (12 cents), 2bn ($120,299,160) in research activity spending.

Paulch however said the legislation is being amended to encourage more companies to utilise the incentive benefits saying the amendments to the income Tax Act will be enforced in October, with the main objective being to increase the number of companies doing Research as well as increase the companies that are already involved in it.

The legislation has been broadened and updated to meet international standards. It will have companies go through a preapproval process before they can make claims; an assessment will be conducted by the Department of Science & Technology and only once approval has been granted is when the company will be able to claim the SA Revenue Service.

Paluch said despite the difficulty involved in accessing the funds because of a lot of paper work along with other restrictions applied for the intellectual property, if one looks on the positive side, the grants enable startups to focus on getting their affairs in order much earlier.

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