Government will forego 18 cents of tax revenue for each rand spent on R&D

16 February 2006

The tax credit of 150% for research and development announced by Minister Manuel yesterday follows close consultations with the private sector. The package has been developed jointly by National Treasury and the Department of Science and Technology. It forms part of Government’s economic programme of action which was announced last year.

The new tax incentive means that, with a corporate tax rate of 36%, Government will forego 18 cents of tax revenue for each rand spent on R&D. Effectively, Government will be paying companies to do research in support of their own business objectives. Given that the private sector expenditure on R&D currently amounts to about 0,45% of GDP, this tax credit represents a windfall of well over R 1 billion.

The system of tax credits for R&D has been tried and tested in countries such as Singapore, Canada and Australia. Its objective is to stimulate further economic growth by stimulating R&D in the private sector. In sectors such as biotech and agroprocessing, the annual rate of return on R&D is over 40%.

Minister Mangena said "Tax incentives are part of the National R&D Strategy. But until now, our implementation of this strategy has focused on large State-driven programmes such as biotechnology and university research chairs. The new incentive is an efficient way of lending balance to our portfolio."

The 150% tax credit has been widely applauded by the private sector. Mr Geoff Rothschild, Director: Marketing of the Johannesburg Securities Exchange, said: “This is a very positive message for young South Africans with an entrepreneurial bent. It is exactly what South Africa needs to stimulate innovation.”

Issued by the Department of Science and Technology.

For more information contact:
Nhlanhla Nyide
Cell: 082 871 6767
Tel: (012) 317 4355