The Department of Science and Technology (DST) expects to announce the first batch of approved software projects, which will benefit from a tax break, next month.
The effective date for companies to submit applications under the new regime was 1 October last year, six months after the tax boost was meant to come into effect.
Under amendments to the Tax Act, which happened last January, software companies developing software for internal business processes, meant for sale, can now claim back research and development expenses against tax.
The change, which clarifies the previous position, is expected to stimulate local innovation and create jobs among SA's estimated more than 1 000 software development firms. So far, the DST has received a total of around 220 applications across all R&D categories, but was not yet able to strip out the number of companies that applied for software benefits under the changed Act.
Keen interest
Godfrey Mashamba, chief director of investment at the DST, says the tax break will stimulate R&D, especially in the banking sector and across software companies that are contracted to develop internal processes. Government aims to improve the percentage of R&D spend from less than 1% of SA's gross domestic product to 1.5%, by 2014.
Although the DST has yet to issue any approvals, committees have met to consider the process and sign off on approved projects, says Mashamba. He explains that the DST has been developing a system for approvals, which is aimed at streamlining the process.
Mashamba explains that development of internal business process software only benefits from the tax break if it is intended for sale. He says the first batch of approvals should be wrapped up next month.
While the provision, allowing claims against R&D, has been in effect since 2007, it previously excluded software companies creating management or internal business software processes, such as accounting packages, Catalyst Research Solutions MD Dov Paluch has explained.
Normally, business expenses can be claimed back at 100%, but the law allows for a "supercharge" of 150%. Based on a tax rate of 28%, this amounts to an additional cash benefit of 14% on qualifying R&D spending, says Paluch.
Mashamba says the amendment to the law has created interest from software companies, and the department received a "lot" of applications in the first two weeks of October. "We hope it will continue like that."
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