An important policy tool for promoting and financing innovation in economic enterprises is the research & development tax credit program. With the approval of the knowledge-based production leap law, the policy of implementing the research & development tax credit has reached the implementation stages in the country. Therefore, designing some appropriate features for the research and development tax credit program is vital in Iran. The success of tax incentive programs such as research & development tax credits is largely dependent on the effective design of the features of such programs. Appropriate design of these features considering the local requirements of different countries is a challenging activity and there is no comprehensive theoretical and empirical guidance in the literature for policy makers in this field. Choosing inappropriate features for the tax credit program, in addition to wasting public resources, can create significant unwanted consequences such as rent-seeking or encouraging companies to participate in inefficient activities. In some cases, these unintended consequences can even lead to market failure
This article aims to propose proper design features for the national research & development tax credit program based on global experiences and the opinions of local experts. For this purpose, at first, the various features of the design of the tax credit program were extracted using reliable sources, and then the appropriate features of the design of the research and development tax credit program for the country were identified using semi-structured interviews with the key stakeholders (custodian institutions, evaluation bodies & applicant companies) of the mentioned program. The results of the content analysis of the interviews were categorized into 10 main categories and 33 subcategories. Finally, a framework for the appropriate features of research & development tax credit was proposed by further analysis & interpretation of the findings.
The presented framework proposes a volume-based method, transferability to future years, prioritization of current costs over capital costs, triple research & development acceptance criteria & no cost ceilings for the first implementation years of the program. Based upon the proposed triple criterion the qualified research & development project shall be systematic, innovative & technological. The current framework doesn’t propose differentiation of research & development tax credit rates for different industries for the simplicity of implementing the program in the first years but as time passes differentiated rates can be considered for different sectors or even different firm sizes.
Another important issue is finding the inclusion and non-inclusion areas for the tax credit program. In line with the experience of the other countries, the presented framework proposes inclusion of all projects except the projects in the area of arts, humanities and social sciences. Although research and development activities in the fields of arts, humanities and social sciences are not accepted in the tax credit programs of most countries, in case of meeting special requirements, these activities can be considered as supporting research and development activities and eligible for tax credit. Regarding the evaluation process of the research & development tax credit, this article suggests a two-step evaluation process. The first step comprises the project appraisal & the second step includes the research & development project implementation costs evaluation. Considering the variety of projects that can be candidates for the tax credit program, a qualified evaluation committee shall be formed under the supervision of the vice presidency for science, technology and knowledge-based economy. The existing experience of executing national programs such and tax exemption of knowledge-based companies is beneficial in this field. Also, considering the newness of the tax credit program in the country, it is necessary to design and implement a coherent and targeted training & promotion program to gain the trust of companies with potential qualified research & development projects.
Finding the right place for research and development tax credits in the national framework of tax policies in the field of technology and innovation is crucial. In other words, we need a comprehensive model in which different tax incentives such as science & technology parks tax support, tax exemptions for knowledge-based companies, research & development tax credits, investment tax credits & also tax support of technological areas in industries and mines under the law on removing obstacles to production, should be taken into consideration in a complete and integrated manner. It is also important to consider synergy between tax and non-tax tools in the field of technology and innovation policy, including financial support to reduce any possible overlaps and help the appropriate arrangement of financial incentives which is the concern of national policymakers in the field of technology and innovation.