At the launch of the IEA’s Submission to Government on Revising the R&D Tax Incentives Schemes, the IEA stressed the urgent need for a revision of support schemes so that increased investment in R&D and new product development takes place. The Association’s chief executive John Whelan warned;
“The manufacturing sector is under increasing strain in the current depressed economic conditions. Exports from the manufacturing sector are forecast to fall by 2%, and with it employment.’’
He went on to say; “The long drawn out recession has eaten into profits; many manufacturing companies are now faced with restructuring and moving towards higher technology products for survival. However, these companies do not have the resources to carry out the necessary research and development, or the funds to invest in the new technology.”
The IEA chief executive further stated; “40,000 jobs have been lost in the manufacturing industry in the past decade, and unless urgent action is taken we will lose another 40,000 over the next decade.”
The IEA in their Submission point out that;
R&D tax credits introduced in 2004 for businesses as a means of stimulating investment activity has worked well in the multinational sector. However, it has by and large failed to appeal to small business and hence we see a very low take up of R&D in small business.
A further problem arises due to the Revenue Commissioners use of a company’s research expenditure in the base year of 2003 and only gives tax relief on increases over the expenditure in that year. This may have been acceptable when introduced in 2004, but is now acting as a disincentive. In addition, delays in Revenue assessment of the R& D expenditure is seen as excessively restrictive, particularly when compared to similar schemes amongst our trading partner countries. The R&D Tax credits are also seen as directed at the wrong people and hence not acting as a fully functioning incentive for business owners.
The IEA stress that greater R&D and new product development in small businesses, will halt the decline in jobs and commence the process of rebuilding employment. However, they point to the shortage of funding sources for such investment stating;
· Many businesses have suffered contraction of profits through the recession and are now under capitalised and need fresh equity to enable new products for export markets to be developed.
· The Employment Investment Incentive Scheme (EIIS) could provide this much needed investment equity, but the scheme excludes the main people with the money to invest.
· The target audience should be the high earners (€150,000 pa plus) and Angel investor groups.
· Also, many investors do not have the skills to successfully invest and the scheme as currently constructed is available only to the individual and does not allow for angel investor group syndicates who have the expertise.
· Finally, the scheme is only offering 20% tax offset, whereas the target group are in the 41% income tax bracket.”