Comments on the draft Tax Laws Amendment Bill (TLAB) published 8 July 2016

We must commend the current Minister of Science and Technology for opening up the discussion on increasing R&D in South Africa. Recently, there have been a number of sessions, starting last year with a breakfast on the R&D Tax Incentive, followed up earlier this year with a session on Innovation Indicators.  The Minister has been extremely vocal on the need to increase technological innovation. One of the key points from the last session was the need for policy stability regarding incentives.

The 11D tax incentive was introduced in 2006 with the hopes of encouraging spend on research and development (R&D) in South Africa. We are all aware of the amendments to the incentive that required all qualifying R&D to be pre-approved by the Department of Science and Technology (DST) before the tax incentive can be claimed.  Through the amendments, government hoped to increase the gross domestic expenditure on research and development (GERD) as a percentage of GDP from 0.76% (2004/05).  Instead of the targeted increase, GERD has in fact stayed constant in 2013/2014 -. The issue is that while our economy may be doing better than other BRICS countries, spend on R&D is not increasing at a similar rate to those countries. In general, while it appears as though there has been activity in relation to the incentive, businesses are still experiencing a wide range of challenges in accessing the incentive.

To address the concerns in the 11D pre-approval process, on the recommendation of our MD Dov Paluch a joint government-industry task team was established comprising key industry players, consultants and government.  To the Minister’s credit, she was very receptive to the idea of the team reviewing the incentive.  After much deliberation and evaluation, the task team published a formal report on the key points for improvement relating to the tax incentive. Some of the major points are highlighted in the Table below:

Table 1: Summary of key recommendations from the 11D Task Team


These recommendations have been shared with Minister Pandor, and submitted for evaluation by the National Treasury as to the feasibility of these changes.

After the promising recommendations from the task team report, the team at Catalyst were eagerly awaiting the draft Taxation Laws Amendment Bill (TLAB) which was published on 8 July 2016.  Disappointingly, it only contained one change to the 11D tax incentive: As tax assessments prescribe 3 years after the company’s year of assessment, delays in the 11D pre-approvals complicated the claiming of the R&D incentive. The TLAB proposed an amendment in 11D, whereby the incentive can be claimed after the prescription date (due to delays experienced from the DST).

The proposed change to 11D is by no means a significant one and does not address any of the concerns raised by the task team.  Not all of the recommendations in fact require legislative change. The Minister has commented on the recommendations indicating that they will be discussed internally.

The wheels of legislative change turn slowly and although none of the recommended legislative changes have been addressed in the current draft TLAB, it is hoped that future changes and amendments to the 11D tax incentive will be made based on the recommendations of the task team.