An update on the status of the R&D income tax incentive
It's been a mixed bag of updates. While the new R&D income tax incentive came into effect on 1 October 2012, the first series of responses to the applications started trickling through in the last quarter of 2013. This signaled hope that the incentive was back-on-track after a protracted period of silence.
In a very recent development, the DST has released a two new, compulsory forms. The first, a Progress Report, is required to be completed within 1 year of a taxpayer's application having been approved. The second, a Notifica-tion Form, is required to be completed each time a change to R&D is introduced. These Forms are not without their problems: the subject matter of both raise a number of serious concerns. A tongue-in-cheek view has been expressed of the authorities' penchant for seemingly endless paperwork and red tape! More seriously, there is a concern that, what was once an alluring, efficient tax incentive is starting to resemble a bureaucratic grant, disincentivising the incentive.
Currently, there are three major issues of concern: first, the lengthy delays persist – taxpayers can continue to expect a wait in excess of 18 months for a substantive response after submitting an application. Since this prevents taxpayers from claiming the incentive in the year of assessment, this is no small matter.
Second, the long-promised Best Practice Guideline has now been outstanding for almost two years. What makes this particularly problematic – apart from the obvious, inordinate delay – is the lack of certainty that has resulted in the vacuum created in its absence. Third, and what is of particular concern to us in recent months is a spate of applications that have been declined by the DST, without any substantive reasons being provided. A number of taxpayers have responded by demanding reasons under the Promotion Of Administrative Justice Act (PAJA) – we believe that litigation against the authorities is now inevitable, which is very unfortunate.
Over the past few years, the authorities have been urged and advised to put proper procedures in place to facilitate appeals processes. For unknown reasons, that advice was declined. We would suggest that the majority of complaints would be removed readily if this measure were introduced.
For what was a very brief moment, there was good news to report: earlier in the year, the DST put out a public tender for external consultants to assist in the assessment of the applications. This received praise from all quarters, and was expected to provide the skilled resources required to give proper, thorough attention to the growing backlog. Inexplicably, however, at the final hurdle, the DST insisted that applicants for the tender would be considered only if they had no experience in dealing with R&D tax incentive applications. We are not certain what advantage could be achieved by excluding experts from considera-tion in a specialised discipline, that is heavily dependent on experts. This decision has been criticised from industry, experts and taxpayers, and the DST has yet to act on the tender. In the meanwhile, the number of outstanding applications continues to rise.
Finally, and most recently, the DST has scheduled what is called an "Industry Information Session" for end-June, although no specific Agenda has been provided. We are hopeful that the appropriate, long-outstanding remedial action is implemented. After all, it's in no one's best interests to see the matter taken to court.