60
Malaysian Science and Technology Indicators 2006 Report Malaysian Science and Technology Indicators 2006 Report61
60
Malaysian Science and Technology Indicators 2006 Report Malaysian Science and Technology Indicators 2006 Report61
Chapter 5 Chapter 5
PUBLIC SUPPORT FOR SCIENCE, TECHNOLOGY AND INNOVATION PUBLIC SUPPORT FOR SCIENCE, TECHNOLOGY AND INNOVATION5.1 INTRODUCTION
Science, technology and innovation (STI) are generally recognized as strategic factors that underpin productivity growth, competitiveness of firms, economic performance and the achievement of social objectives of nations. The development of capabilities in STI as well as the transformation of ideas into innovations are costly as well as fraught with numerous risks. Given these uncertainties, firms generally under-invest in R&D activities compared to what is socially optimally. This situation is even worse in the developing world where there is little tradition of undertaking R&D. Arising from this market failure, it is widely accepted that governments have a role in promoting R&D in particular and the development of scientific, technical and innovative capabilities in general. Many countries have introduced a number of measures – both fiscal and non-fiscal – to promote greater R&D and innovative activities; attract foreign knowledge-intensive companies; promote technology diffusion and acquisition of technologies. Factors peculiar to each country will determine the choice of measures, that is, whether tax incentives, direct grants, loans, patent rights or other instruments that will be adopted to stimulate research and innovative investments.
Several studies have revealed that these support measures such as R&D tax incentives can be an effective instrument for inducing a certain degree of private investments in research. However, the effectiveness of these support measures depends not only on how well they are designed in alignment with policy objectives but also on the administrative capacity and capabilities of the agency entrusted to administer the incentives. Box 5.1 provides a brief description of the various direct and indirect support measures adopted in a number of countries to promote R&D and innovation activities.
This chapter describes the various public schemes in place to promote STI. It provides an account on the status of these schemes in terms of number of applications as well as the quantum approved. Additional details pertaining to feedback from industry are also provided to present an account on the appropriateness of the incentives as well as their administration.
ARTICLE BOX 5.1: Selected Literature Reviews on Adoption of Fiscal Incentives, Support Measures and R&D Fiscal Policy for promotion of R&D and Innovation activities
In recent years, the generation and diffusion of innovations have assumed increasing importance in the economic agendas facing many countries. In an effort to expand their level of innovation, several countries have turned to fiscal incentives which can be of two kinds, namely, direct support and indirect support. The direct governmental support mechanisms to business R&D can, according to Van Pottelsberghe et al. (2003), be grouped into two categories. Firstly, there are fiscal incentives, which stimulate business R&D through a reduction on the tax burden. Secondly, governments can stimulate R&D even more directly through financial support which takes the form of grants, loans and subsidies given to selected companies in order to perform specific R&D activities. Some negative issues arising from direct support incentives need to be recognised. Firstly, there is a risk of substitution, that is, financially rewarding business R&D that would have taken place even without these support incentives. Secondly, there is a risk of crowding out through prices which may decrease the volume of R&D undertaken. Thirdly, there is a possibility of allocative distortions since some projects supported by the government exclude others from being undertaken.
Despite these negative sentiments, a vast plethora of literature finds that direct support measures including use of fiscal incentives appear to expand the net amount of business R&D. The study by Van Pottelsberghe et al has also examined the differences between fiscal measures and direct financial support to R&D and made the following observations:
(i) Fiscal incentives are more neutral than direct R&D grants regarding recipient companies;
(ii) The administrative cost of running a fiscal incentive programme is lower than a
Governments have a role in supporting STI including R&D given the inherent uncertainties in these activities, their high costs and their pervasive impacts on the economy
While role of Government is acknowledged in promoting STI, the success of these support efforts is dependent on the effectiveness of their implementation
60
Malaysian Science and Technology Indicators 2006 Report Malaysian Science and Technology Indicators 2006 Report61
60
Malaysian Science and Technology Indicators 2006 Report Malaysian Science and Technology Indicators 2006 Report61
Chapter 5 Chapter 5
PUBLIC SUPPORT FOR SCIENCE, TECHNOLOGY AND INNOVATION PUBLIC SUPPORT FOR SCIENCE, TECHNOLOGY AND INNOVATIONfinancial one;
(iii) Fiscal incentive schemes are more accessible than direct governmental support.
(iv) Fiscal incentives can be more predictable from a corporate perspective than direct grants.
(v) Unlike direct R&D funding programmes, which are usually endowed with fixed annual resources, a fiscal incentive policy does not allow for an evenly tight budget control.
There is no uniform R&D fiscal policy adopted across countries. Despite this diversity in R&D fiscal systems, an OECD (1996) study concluded that with regard to best practices in designing and implementing R&D tax provisions, the following have been identified:
(i) R&D tax policy should be designed as part of an overall strategy to stimulate innovation in industry and should complement other science and technology policies;
(ii) The R&D tax policy should be simple, comprehensive and incur minimal administrative and compliance costs;
(iii) The R&D tax policy should be flexible in order to accommodate firms at different stages of development.
(iv) R&D tax policy should consider incorporating special provisions relating to small and/or new firms in order to encourage entrepreneurship and innovative start-ups.
An evaluation of the R&D tax incentives available in Malaysia would be timely in order to ensure that such incentives contribute towards greater R&D and innovative activity particularly among local companies. The redesign of our incentive system can draw lessons from the best practices as described in the OECD study. Ultimately, however, choice of R&D fiscal incentives will depend on country-like variables such as overall innovation performance, industrial structure, size of firms etc.
Source: Van Pottelsberghe, B., Nysten, S., Megally, E. (2003), ‘Evaluation of Current Fiscal Incentives for Business R&D in Belgium’ Working Paper, Solvay Business School, Universite libre de bruxelles, http://www.belspo/stat/rap/fiscRDJune03.pdf OECD (1996) Fiscal Measures to Promote R&D and Innovation. http://www.oecd.org/dataoecd/35/15/2101604.pdf
5.2 APPLICATION AND APPROVAL FOR S&T-RELATED GRANT SCHEMES
Funding for STI is implemented through various grants and incentives encompassing the whole range of activities from the stage of idea generation to commercialisation and marketing as depicted in Figure 5.1. This section will examine the performance of the various grant schemes as follows:
• Technology Acquisition Fund (TAF);
• Commercialisation of R&D Fund (CRDF);
• Demonstrator Application Grant Scheme (DAGS);
• Multimedia Super Corridor R&D Grant Scheme (MGS);
• Industry Grant Scheme (IGS)
• Industrial Technical Assistance Fund (ITAF)
62
Malaysian Science and Technology Indicators 2006 Report Malaysian Science and Technology Indicators 2006 Report63
62
Malaysian Science and Technology Indicators 2006 Report Malaysian Science and Technology Indicators 2006 Report63
Chapter 5 Chapter 5
PUBLIC SUPPORT FOR SCIENCE, TECHNOLOGY AND INNOVATION PUBLIC SUPPORT FOR SCIENCE, TECHNOLOGY AND INNOVATON5.2.2 Commercialisation of R&D Fund (CRDF)
The CRDF was established to provide grants to qualified R&D projects (undertaken by local tertiary institutions, research institutes and industry) for commercialisation. Prior to this scheme, there were no support measures to commercialise the findings of the various research projects sponsored under the IRPA programme. Despite the introduction of the CRDF, the number of applications and approvals under this scheme has stagnated in recent years as revealed in Figure 5.3. The number of applications stood at 28 for the period 2003-2005 while a total of 21 projects costing some RM 22.21 million were approved during the same period. Almost a third of the approved projects were from the electrical and electronic cluster. Although the number of approved projects is higher than that recorded during the period 2001-2002 (10 projects), the paucity in both the number of applications and approvals is disconcerting given the huge number of projects funded under the IRPA programme.
7 8
11 17.92
6.66 10.05
0 2 4 6 8 10 12
1 2 3
0 2 4 6 8 10 12 14 16 18 20
Number of Companies Amount of Grant Approved (RM Million)
Source: MTDC
NumberofCompanies AmountofGrant Approved(RMMillion)
Year Figure 5.2: Summary of TAF approvals, 2003-2005
Decrease in number of CRDF applications as well as approvals
13
9
12
4
11.24
6 5.18
5 5.79
0 2 4 6 8 10 12 14
2003 2004 2005 2003 2004 2005 2003 2004 2005
Applications Approvals Amount approved
Source: MTDC NumberofProjects/Amount Approved(RMMillion)
Year
Figure 5.3: CRDF Applications and Approvals, 2003-2005 5.2.1 Technology Acquisition Fund (TAF)
Technology Acquisition Fund (TAF) is a scheme administered by the Malaysian Technology Development Corporation (MTDC). The main object of this scheme is to facilitate the acquisition of strategic technologies by the industrial sector. The TAF provides partial grants to further promote efforts by the private sector to acquire new technology and to enhance their technological capabilities and production processes. The eligible activities covered under the TAF include, among others, the following:
• Purchase of high technology equipment and machinery;
• Technology licensing;
• Acquisition of patent rights, prototypes and designs;
• Training in foreign companies for high technology; sourcing of experts; and
• Organising of seminars on technology by industry associations
During the period 2003-2005, a total of 60 applications were made by companies from several industries. This number of applications did not depart considerably from the figure applied during the period 2000-2002. Most of the applications received were related to electrical and electronics, advanced materials, machinery, industrial products and biotechnology as these sectors exhibit dynamic technical innovations.
The number of approvals granted during the period 2003-2005 was 26 – a sharp drop from the 38 approvals recorded during the period 2000-2002. Figure 5.2 illustrates the number of projects as well as the total amount approved during the period 2003-2005.