Productivity and Innovation Credit scheme results ‘less than satisfactory’, says EY

The government should focus on this in the 2015 budget.

EY today released its wish list for the 2015 budget. This includes improvements to the Productivity and Innovation Credit (PIC) scheme, which was first launched in 2010.

According to EY, the PIC’s results have been less than satisfactory, reflected by slow productivity growth over the past few years.

EY noted tha only 3% of all PIC claims were related to R&D and other qualifying activities although the R&D tax incentive offers an attractive 400% tax deduction for up to $400,000 in qualifying expenditure annually and 150% for qualifying expenditure beyond the cap.

“We have observed that taxpayers sometimes encounter difficulties in their R&D claims, such as protracted discussions on the technical eligibility of the projects where a highly stringent interpretation of qualifying R&D projects or a lack of appreciation for the technical aspects of the R&D process can result in projects being disqualified from the claims. This may have affected the effectiveness of the incentive,” said Tan Bin Eng, Partner, Business Incentives Advisory at Ernst & Young Solutions LLP.

Tan suggested that the government introduce a ‘tag team’ approach in administering the R&D claims, which involves establishing a separate technical evaluation team that can assess the technical eligibility of R&D claims. Meanwhile, another team consisting of IRAS tax officers can process the R&D claims.

“This approach ensures taxpayers are able to have a robust discussion with officers having the relevant technical background on the technical aspects of the R&D project,” she said.