South African Government Mulls Tax Incentives To Boost R&D

by Caroline Maxwell, Tax-News.com, London

14 May 2002

According to a report in the South African Sunday Times, the government is considering offering tax incentives to companies which undertake research and development (R&D) in South Africa in order to boost the rapidly declining levels of investment in this area.

Currently, only 0.7% of the country's GDP is spent on research and development, down from 1.1% in 1991. The majority of the world's developed nations dedicate between 2% and 3% of GDP to funding R&D. The South African government, according to the Sunday Times, is desperate to turn the tide, frightened that the country's long-term competitiveness will suffer as a result.

Globalisation and the offshore relocation of many companies have been blamed for the decline in R&D spending. Speaking at the weekend, Rob Adam, the Director-General of the Department of Science and Technology confirmed that this has certainly impacted on the amount of investment in intellectual capital:

'There is certainly a perception that, as a result of offshore listing and globalisation, your intellectual capital can get sucked off into the international environment,' he told the newspaper, adding that: 'You are left with what looks like an interesting business, but in fact, it's hollow.'

Whilst refusing to categorically state that the SA government will offer tax incentives for R&D, Mr Adam did observe that a concession for research performed by companies in South Africa would ensure that 'companies think twice from a short-term financial view about putting their intellectual capital elsewhere'.

'Unless you own your own intellectual property, the notion of global competitiveness goes out the door,' he warned.

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