In yesterdays post I considered some of the implications of a recent Supreme Court of Appeal judgment on foriegn exchange regulations. That analysis segued into a brief consideration of some other legal provisions that affect foriegn investment into innovation in South Africa, including tax. Short as that was it consideration made it clear to me that the various rules of tax and financial regulation have been made and revised for a number of reasons, none having anything to do with innovation. The collective impact of the rules doesn’t seem to have been considered, nor does there seem to have been any empirical research into their impact on innovation.
Neither that post, nor this is a detailed study of the arcana of South African tax legislation, regulation and practice. Instead its to invite comments on what would constitute tax and financial provisions which would encourage innovation.
To start the conversation I’ve listed a few of the proposals I’ve heard in the last few years. The South African government, especially the Ministry of Science and Technology have espoused a great deal of interest in South Africa entering the ‘Knowledge Economy’. One aspect of South African government policy is to try to increase the number of maths, science and engineering graduates and especially postgraduates. Another is to encourage entrepreneurs in information technology, biotech and nanotech.
Some simple changes to tax policy that would encourage such innovations could include the following.
Exempt textbooks from VAT.
Provide tax relief for the cost of postgraduate study.*
Provide an efficient mechanism for South African entrepreneurs to attract foriegn capital, and enter foriegn markets with intangible rights such as patents.
*My understanding is that while currently professional continuing professional education, at least for lawyers, engineers and some health professionals is permitted as a revenue deduction post graduate education is regarded as capital expenditure. Capital expenditure might of course be permitted as a deduction from capitals gains tax. This might make sense for expenditure on something which on its sale may result a capital gain such as house but its hardly applicable to a research scientist.
What are your ideas?