Government's recently announced tax break that makes it easier for software developers to claim back research and development (R&D) expenses could fail to stimulate the sector, because it is too narrow.
Although a provision allowing expenses 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.
This was changed in January, after the Income Tax Act was amended, making it easier for software development companies to claim against R&D expenses. Software firms creating internal software solutions can now claim back 150% of their costs.
The provision will theoretically spur companies to develop software, which should result in job creation across the value chain.
However, it does not go far enough to stimulate R&D and could fail to aid government's ambition of boosting R&D spend from below 1% of gross domestic product to 1.5% by 2014, argue industry players.
Needs rethinking
Wilkins says this should be reviewed, because the barriers to entry in the sector are high as the global market is flooded with products that are offered at fiercely competitive prices, and are sometimes free.
In addition, getting significant amounts of software onto shelves takes time, money and effort, says Wilkins. “Taking a product to market is a lot different from building software to solve a specific problem within a single company.”
Wilkins says the break should be extended to include products that are built for in-house use and not for resale, as software drives business expansion.
“Any investment into software and technology that drives growth and job creation should be seen as moving SA closer to keeping up with its counterparts on the global stage.”
Wilkins says the tax break should be broader and be linked to all software and technology development as this would act as a catalyst to remove stumbling blocks such as broadband speeds, and the shortage of people with the skills and attitude to build the software SA does not yet have.
Not enough skills
MIP founder and CEO Richard Firth says if SA does not improve the education and quality of software developers, the tax incentive and government's aim of boosting R&D will fail. He says the tax benefit is a “great idea in theory” and could lead to more jobs being created.
However, says Firth, there is already a lack of suitably qualified software developers. He says SA has a “long way to go” to train and educate prospective software developers to get them up to speed in order to make the tax break realistic. “To become a knowledge-based economy, you've got to have the knowledge.'
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