Thursday, 03 May 2018 09:39

Govt urged not to drive ICT outfits offshore by changing R&D incentives Featured

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The Australian Government has been urged not to trade off short-term budget savings for the country's long-term prosperity by making changes to the $3 billion R&D Tax Incentive and restricting claims for software R&D.

Australian Information Industry Association chief executive Rob Fitzpatrick said if changes were made to the R&D scheme, then the likelihood of ICT companies relocating to other countries to pursue their idea was very high.

The R&D Tax Incentive seeks to improve the quality and quantity of R&D investments and is a broad-based program that is accessible to all industry sectors where businesses get a refund or tax offset for undertaking R&D activities if requirements are met.

Fitzpatrick pointed out that the New Zealand Government had announced recently that it was reinstating its R&D Tax Incentive program.

"Once enacted there will be a good incentive for Australian ICT companies to relocate to New Zealand for a more supportive R&D scheme. As a result, Australia is at risk of losing its ICT companies to other countries if further cuts are made to the R&D Tax Incentive," he said.

Fitzpatrick underlined the fact that restrictions for software R&D were "particularly problematic".

"IT research is the biggest component of business R&D, and one of the few fields where research spending has grown over the last decade," he said. "ICT spending is now a significant proportion of GDP.

“Without adequate government support, businesses will under-invest in R&D in Australia because the full public benefits of new knowledge cannot be captured by private investors. As our ICT companies become increasingly globalised they will be encouraged to seek innovation incentives offered by other countries.

“ICT is a highly mobile, high skilled labour-based industry and businesses will move their scarce labour resources to where there is better support. R&D must be seen as an investment that can prevent this brain drain."

He said industry acknowledged the importance of ensuring the R&D Tax Incentive was well designed, but constant changes were preventing businesses from investing with confidence.

“Efforts to restrict claims are supposedly motivated by concern that the system is being abused, but evidence has not been presented that this is a widespread problem - despite a number of requests - and the proposed changes will mainly punish legitimate research," Fitzpatrick said

“The AIIA and its members have been closely engaged with AusIndustry on the update of the guidance material on software R&D. Unfortunately it’s our view that changes were designed to restrict claims rather than to clarify them.”

The AIIA cited the cases of a number of companies which had developed innovative solutions to technological problems:

  • In the case of QPay, a payments platform for university students, its MasterCard offering would have been delayed for at least 12 months without an R&D claim.
  • In the case of SalesPreso, which is used for creating customised presentations, the AIIA said the investment in innovation would have been restricted without the R&D claim.
  • A third case, that of TOTECS, which offers readymade eCommerce websites, the company would have shut down had it not been for the R&D money.
  • Health solutions provider ToukanLabs was clear that it would not have been able to set up shop in Australia without an R&D claim.
  • Predictive crop health diagnostics firm FluroSat said it would have been unable to invest in its novel sensor technology without the R&D claim.
  • Two other companies who preferred anonymity said development would be slowed if not for the R&D claims.

Fitzpatrick said that the ICT industry was particularly concerned about the proposed intensity test, which limits the R&D incentive to both large and small businesses with a particular level of R&D activities.

“There is little evidence that an intensity test will increase additionality and it may in fact do the opposite. In general, Australia is dominated by industries with relatively low levels of R&D intensity," he said.

"The R&D Tax Incentive is crucial to encouraging firms in these industries to make small investments in R&D that may later lead to broader research programs.

“Often research units in large firms begin because one or two employees are able to convince management to take a small risk. These initiatives would be strangled by the introduction of an intensity test, and for most firms committing one per cent (of total expenditure) to an unproven research project is not feasible.

“We have spoken to a number of successful Australian businesses who would not be here today if not for the R&D Tax Incentive. They explain what the R&D Tax Incentive did for them and what it would mean if they couldn’t claim in the future."

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Sam Varghese

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Sam Varghese has been writing for iTWire since 2006, a year after the site came into existence. For nearly a decade thereafter, he wrote mostly about free and open source software, based on his own use of this genre of software. Since May 2016, he has been writing across many areas of technology. He has been a journalist for nearly 40 years in India (Indian Express and Deccan Herald), the UAE (Khaleej Times) and Australia (Daily Commercial News (now defunct) and The Age). His personal blog is titled Irregular Expression.

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