The draft refinements and accompanying explanatory memorandum to the research and development (R&D) tax incentive (in terms of Section 11D of the Income Tax Act) for potential inclusion in the 2023 Budget and draft 2023 Taxation Laws Amendment Bill (TLAB) have been released for public comment.
Interested parties have 30 days in which to provide comments.
In a statement, the National Treasury explains that government is proposing to extend the R&D tax incentive beyond December 31, 2023, likely for a period of ten years, following a consultation process with industry stakeholders.
However, given the experience gained in adjudicating applications and the review conducted, government is of the view that the R&D tax incentive requires some refinement.
It is the only policy instrument targeted at encouraging the earlier phases of R&D, Treasury notes.
It says the proposed refinements to Section 11D of the Income Tax Act will move the incentive closer to its intended objectives.
The 2021 Budget Review stated that government would review the R&D tax incentive. A discussion document titled ‘Reviewing the Design, Implementation and Impact of South Africa's Research and Development Tax Incentive’ was jointly published by Treasury and the Department of Science and Innovation for public comment on December 15, 2021. The discussion document included a link to an online survey.
In this year’s Budget Review, Treasury announced that the R&D tax incentive would be extended until December 31, 2023, to allow the review of the incentive to be finalised as there was insufficient time to hold a public consultation between publishing the discussion document and the 2022 Budget.
Responses to the survey were received from 74 interested parties, some of which provided additional written comments.
A public workshop was held on April 7 to discuss the written comments and survey results and better understand the concerns of industry.
As noted, the draft refinements and accompanying explanatory memorandum have been published on October 7, and these proposed refinements do not constitute a tax Bill, Treasury clarifies.
Based on these proposals and all public comments received, a final proposal will be included in the 2023 Budget for inclusion in the draft 2023 TLAB.
Following that, the usual public consultation process will ensue. The publishing of these suggested refinements provide the public with an additional chance to provide inputs before having sight of them in the draft 2023 TLAB, Treasury says.
It is envisaged that the proposed changes to refine and simplify the legislation, combined with the move to an online process and enhancing the application process for smaller businesses, should enhance the uptake of the incentive.
The draft refinements to Section 11D of the Income Tax Act and the accompanying explanatory memorandum can be found on Treasury’s website and on the South African Revenue Service’s website.