# General Business Category > Business Finance Forum > [Article] R& D Tax Incentives

## Blurock

I wonder how many companies are making use of the incentives available from government.

South Africans are great innovators as evidenced by the first heart transplant, ISCOR and SASOL, our previous uranium enrichment programs etc etc. The list is just too long. What is stopping us?

This type of tax break may just make it possible to invest more in R & D and still get a proper return on your investment. On the upside, the new innovation may give us a leading edge against our competitors or replace expensive imports.




> Companies undertaking scientific and technological research and development (R&D) in South Africa can qualify for a 150% tax deduction for operational R&D expenditure in terms of section 11D of the Income Tax Act.This incentive is available to businesses of all sizes and in all sectors of the economy as long as they are registered in South Africa. To qualify for the deduction, the R&D activities against which the expenditure is incurred must be approved by the Minister of Science and Technology.
> 
> The incentive is aimed at encouraging businesses to invest in R&D in South Africa. The objective is to help companies build capabilities and innovations by creating new products, processes, devices and techniques, and/or significantly improving existing ones. This incentive is part of a package of measures that the government of South Africa has introduced to support R&D-led innovation, industrial development and employment creation.
> 
> 
> Application process
> 
> To access the incentive, a company must complete an application form (www.dst.gov.za/r-d) and submit it to the Department of Science and Technology (DST), which is responsible for the administration of the process.  DST officials can provide information and assistance regarding completing the application form. 
> 
> ...

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Dave A (21-Jul-14), dellatjie (21-Jul-14), workingsmart (23-Jul-14)

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## desA

At what point do the great leveler questions arise? 

What is your BBBEE status? Are you predominantly black owned?

I saw this with Patent & Design Registration support for the formerly disadvantaged group. It presents major hurdles to minority developers, as Eskom's pilot attempts at Open Innovation showed. Rather like a slap in the face with an old wet fish.

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## Justloadit

When I last looked at this some years back, there were many strings attached, I wonder if they are still present.

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desA (22-Jul-14)

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## Greig Whitton

> What is your BBBEE status? Are you predominantly black owned?


I can't comment on the R&D tax incentives, but I know that many government grants and funding programs don't involve B-BBEE or black ownership application criteria.

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## Justloadit

Can you name one?

The last time I was at DTI, for a grant, approximately a year ago, it was the very first question asked, and was told that it would be very difficult for me to get it, not being being more than 50% BEE with a shrug of the shoulders.

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## Greig Whitton

> Can you name one?


The Aquaculture Development and Enhancement Programme
The Automotive Investment Scheme 
The Clothing and Textile Competitiveness Improvement Programme 
The Foreign Film and Television Production and Post-Production Incentive 
The Incubation Support Programme 
The Manufacturing Competitiveness Enhancement Programme

Those are just some of the DTI grant programs that don't have mandatory B-BBEE or black ownership requirements (in fact, the only DTI grant with an explicit black ownership requirement that I can think of is the Black Business Supplier Development Programme).

Apart from the DTI's various grant programs, there are plenty of other government business financing programs that don't have mandatory B-BBEE or black ownership requirements (e.g. some of the financing services offered by the IDC and SEFA).




> The last time I was at DTI, for a grant, approximately a year ago, it was the very first question asked, and was told that it would be very difficult for me to get it, not being being more than 50% BEE with a shrug of the shoulders.


Which grant were you trying to apply for?

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Dave A (24-Jul-14)

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## Blurock

> Can you name one?
> 
> The last time I was at DTI, for a grant, approximately a year ago, it was the very first question asked, and was told that it would be very difficult for me to get it, not being being more than 50% BEE with a shrug of the shoulders.


Never give up. Yes, there are racist people out there. I have experienced it first hand as two black entrepreneurs missed opportunities because funding would not be granted if white people were involved. The NEF is one of those organisations where a black man cannot even get assistance if there are white people involved in his business. Enablis is another organisation that will only grant loans to 100% black businesses. 

The flipside is that there are other funds and and means to get assistance. Fortunately there are still people in government who realise that we need to stimulate growth in order to create jobs. When will we ever get past the racism and get on with business so that we as a country can move on? 

There are many young people who are not black or white, but they are South Africans. They have great ideas which can move the world and make this a great country. Names such as Elon Musk, Mark Shuttleworth and others come to mind. Lets give everyone an equal chance and see this country grow! Never give up!

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reuphk (21-Sep-14)

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## Justloadit

> Which grant were you trying to apply for?


R & D

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## desA

The main thing is that generally, the BBEEE/racist exclusions are not in the printed blurb sheets, but enter as implied criteria.

Some others eg. R&D & IP support are blatantly racist. Shocked both me & my IP attorney when we explored various options.

Formerly advantaged folks really do need to see the writing on the wall, in this regard. The old wet fish slap is never far away, in the New SA. This is the way it is.

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## Greig Whitton

> R & D


Can you recall the name of the specific grant program? (many of the DTI's grants can be used for R&D purposes, and there are a number of non-DTI R&D funding programs like the SARS R&D tax incentive)

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## Greig Whitton

> The main thing is that generally, the BBEEE/racist exclusions are not in the printed blurb sheets, but enter as implied criteria.


Having personally worked on a number of financing applications (specifically, DTI grant applications), I don't entirely agree with this. Obviously some programs have explicit B-BBEE or ownership criteria, but those that don't may request the same information to track how government financing is being allocated (since economic empowerment is an obvious national priority). However, they won't disqualify applicants for failing to meet "hidden" criteria.




> Some others eg. R&D & IP support are blatantly racist.


Which R&D and IP support programs are you referring to?

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## roryf

I looked at getting a manufacturing grant a few months back and it didn't pay me to take up the grant.I would have had to spend more money on getting a higher BEE score for the grant to happen,than I would have got back from the grant.

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## Greig Whitton

> I looked at getting a manufacturing grant a few months back and it didn't pay me to take up the grant.I would have had to spend more money on getting a higher BEE score for the grant to happen,than I would have got back from the grant.


Which grant were you applying for? (I am aware of at least two: the Manufacturing Competitiveness Enhancement Programme and the Manufacturing Investment Programme - but neither of them have mandatory B-BBEE criteria).

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## Justloadit

> Can you recall the name of the specific grant program? (many of the DTI's grants can be used for R&D purposes, and there are a number of non-DTI R&D funding programs like the SARS R&D tax incentive)


Can not recall, but we were looking for R5mil, and with the response, I simply decided to move on.

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## roryf

> Which grant were you applying for? (I am aware of at least two: the Manufacturing Competitiveness Enhancement Programme and the Manufacturing Investment Programme - but neither of them have mandatory B-BBEE criteria).


MIP.I did have a long chat to the consultant from Bidvest and the outcome was that it would cost us more because of the BEE.In the end we financed the machinery ourselves.

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## Greig Whitton

> MIP.I did have a long chat to the consultant from Bidvest and the outcome was that it would cost us more because of the BEE.In the end we financed the machinery ourselves.


I am very surprised to hear that since the Manufacturing Investment Programme does not have mandatory B-BBEE or black ownership requirements. The DTI does take an applicant's B-BBEE rating into consideration when evaluating and approving applications, but this is just one of many different factors. It is perfectly possible for a wholly white-owned business that is not B-BBEE compliant to have a MIP application approved.

In any event, the DTI has suspended MIP due to over-subscription, so that particular grant is no longer available. However, if you would ever like a second opinion about other grants and financing options, please contact me.

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## Blurock

> MIP.I did have a long chat to the consultant from Bidvest and the outcome was that it would cost us more because of the BEE.In the end we financed the machinery ourselves.


Was the problem with the consultant or with DTI?

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## Blurock

The Dept of Economic Development have budgets specific to certain provinces. As an example, in KZN there is the Local Competitiveness Fund "Gijima" available to businesses in KZN only. Other provinces have similar funds. There is no BEE requirement as the main criteria is the creation of sustainable jobs.

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Greig Whitton (23-Jul-14)

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## Greig Whitton

> The Dept of Economic Development have budgets specific to certain provinces. As an example, in KZN there is the Local Competitiveness Fund "Gijima" available to businesses in KZN only. Other provinces have similar funds. There is no BEE requirement as the main criteria is the creation of sustainable jobs.


Spot on. There are also privately managed business financing programs funded by corporate B-BBEE enterprise development budgets (and, ironically, mandatory B-BBEE or black ownership criteria don't always apply to these either).

The sheer scale of business financing available in this country is staggering. Well over a hundred public and private sector funds representing billions and billions of development capital. And the vast majority of it is available irrespective of race.

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## Daven

I think I have tried all avenues at the DTI to try and acquire a small grant ( < R500,000) to finalised many years of self funded R&D in creating a range of first class LED based lighting products for both mains and solar use. 
I have self funded five prototypes and now have a solution that gives me a light that is > 95% efficient irrespective of the power source.
I have spent more than R600,000 of my own money and cannot get a grant to finalise the design for SABS approval as I am a white designer. 
How will SA ever get over the past and start moving forward ?
So much for government assistance to entrepreneurs.

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## IanF

Why not try kickstarter here is a link to a 32watt LED lamp that was funded this way.

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## Greig Whitton

> I think I have tried all avenues at the DTI to try and acquire a small grant ( < R500,000) to finalised many years of self funded R&D in creating a range of first class LED based lighting products for both mains and solar use. 
> I have self funded five prototypes and now have a solution that gives me a light that is > 95% efficient irrespective of the power source.
> I have spent more than R600,000 of my own money and cannot get a grant to finalise the design for SABS approval as I am a white designer. 
> How will SA ever get over the past and start moving forward ?
> So much for government assistance to entrepreneurs.


Which DTI programs have you tried applying to? The reason why I ask is because very, very few of them have mandatory black ownership requirements.

Are you actually selling your products or are you still in a pre-commercial R&D phase? If the latter, you are barking up the wrong tree with the DTI (since they very rarely fund entrepreneurs without a trading history) and are better off pursuing other sources of funding.

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## Justloadit

So what makes your light different to what is already currently available in the market?
What are the features and benefits?

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## Daven

I am at the last stage of R&D on this range - finalisation of artworks and parts lists  in order to go into production.
These lamps have an efficiency of  > 95% and, as such, do not need a heat sink. They run almost cold to the touch.
They are all controlled either directly or indirectly via a microcontroller which has been secured to prevent duplication.
All AC lights are dimmable, even the tubes.
Apart from the obvious electronic components, all else is locally manufactured. 
I own the injection mold for the downlighter shapes and the extrusion die for the extrusion of the polycarbonate tubes for fluorescent tube replacements.
I have been running these for 24hr/day for over four years without failure or loss of light output.
Hope this answers some questions.

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## Justloadit

> I am at the last stage of R&D on this range - finalisation of artworks and parts lists  in order to go into production.
> These lamps have an efficiency of  > 95% and, as such, do not need a heat sink. They run almost cold to the touch.
> They are all controlled either directly or indirectly via a microcontroller which has been secured to prevent duplication.
> All AC lights are dimmable, even the tubes.
> Apart from the obvious electronic components, all else is locally manufactured. 
> I own the injection mold for the downlighter shapes and the extrusion die for the extrusion of the polycarbonate tubes for fluorescent tube replacements.
> I have been running these for 24hr/day for over four years without failure or loss of light output.
> Hope this answers some questions.


What does 95% efficiency mean? You can run any LED to the point that no heat is generated, but it also does not illuminate much. Alternatively if you get small LEDs which are low power but still rated at a high Lumens per Watt rating, by assembling them over a larger area, no heatsink is required, and the copper on the PCB laminate will suffice tomaintain the LEDs cool.
How many Lumens per Watt? Currently the highest Lumens is approximately 126 Lumens per Watt. Depending on the supplier, and LED type, the amount of heat generated may be negligible, but then the LED is really a small LED, some where around 300mWatt. It then requires many LEDs to make up a usable light.
There are numerous circuits available to drive LEDs directly or indirectly from mains from reputable manufacturers such as PI, BCD, Linear, Texas to name a few with near unity in the Power Factor measurements.

The secret here is cost to the user. The more smaller LEDs used, the higher the PCB laminate cost due to physical size, and accompanied by assembly cost. In many instances one wants to distribute even light over a larger area, and the placement of many small LEDs is a solution. Currently if you wish to get any decent light out of a small down lighter, you musty be in the order of approximately 600 to 700 Lumens, requires a high amount of LEDs concentrated in the space of the down lighter to get the intensity. The moment you bring all the LEDs into a small area, then the amount of PCB material can not dissipate the heat, and hence the use of aluminium PCB along with aluminium extrusion for heatsink.

What is now being produced by a number of manufacturers, is to change the way a down lighter is designed, and use a plastic disc to project the light indirectly as opposed to using LEDs directly. Using this method, there is a larger circumference area to dissipate the heat generated by the LEDs.

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## Daven

My typical downlighter replacement has a light output of 460 Lumen which equates to just over 100 Lumen/Watt.
Typical imported equivalents have a light output between 200 and 350 lumen.
Price comparison wise, I am in the same price range as the imported lights.
The advantage, however, is if there is a problem with my lights, people have a place to contact to remedy the situation. Not so with imported lights.
From empirical experience the imported lights may last a year, if you are lucky.
Manufacture overseas, we all know where, is fraught with problems. Ask a few manufacturers in the US that have had to recall large numbers of lights due to faulty manufacture, some of which were hazadous.
I have disected a few of these lights and the stresses that the components are subjected to make failure a matter of when and not if.
Underated capacitors are very common.
Non of the imported products are subject to IEC, or in our case, SABS testing, yet I must comply before any serious distributor will even consider distributing my products. Most of the products I have disected would fail miserably.

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## Justloadit

> My typical downlighter replacement has a light output of 460 Lumen which equates to just over 100 Lumen/Watt.
> Typical imported equivalents have a light output between 200 and 350 lumen.
> Price comparison wise, I am in the same price range as the imported lights.
> The advantage, however, is if there is a problem with my lights, people have a place to contact to remedy the situation. Not so with imported lights.
> From empirical experience the imported lights may last a year, if you are lucky.
> Manufacture overseas, we all know where, is fraught with problems. Ask a few manufacturers in the US that have had to recall large numbers of lights due to faulty manufacture, some of which were hazadous.
> I have disected a few of these lights and the stresses that the components are subjected to make failure a matter of when and not if.
> Underated capacitors are very common.
> Non of the imported products are subject to IEC, or in our case, SABS testing, yet I must comply before any serious distributor will even consider distributing my products. Most of the products I have disected would fail miserably.


True with respect to imports.
SABS and SANAS are on a drive to change this, although I have not heard any shipments being stopped.
What pees me off, as you have said, when they buy local manufactured, they ask for all the certification, yet they import with out even asking the question, and purely based on price.
I have heard that a very well known supplier has had approximately a 50% failure rate on their off shore manufactured product.

The failure rates come from trying to save every single cent on cost, to the detriment of the product. In one case the capacitor they should have used was a few US cent more expensive, and they opted for the cheaper one, with a 40% destructive failure rate. The mind boggles at this kind of approach.

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## Daven

So here we all sit, seeing the problem but doing nothing about it.
I am happy to say I have another chance with the DG of the DTI early next month and will let you all know what happens.
Maybe there is a very dim light at the end of this tunnel - hope it is not an imported one that fails before I get there.
Thanks for all the comments guys, will keep you informed.
Regards to all, Dave

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## Greig Whitton

> I am happy to say I have another chance with the DG of the DTI early next month and will let you all know what happens.


Are you actually selling your products or are you still in a pre-commercial R&D phase?

How much funding do you need and what, exactly, do you need it for?

Which DTI programs are you planning to apply to and which have you already tried applying to?

Which other sources of funding have you tried?

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