Australia needs tax incentives to be globally competitive

Tuesday, 17 June, 2014

AusBiotech has submitted to the Competition Policy Review (June 2014) that Australia needs to complement the R&D Tax Incentive with the Australian Innovation and Manufacturing (AIM) Incentive if it is to remain competitive and relevant on the world stage.

The review sought to identify factors impacting on competition in Australia. AusBiotech’s submission did not address issues raised in the Issues Paper (April 2014), but rather raised concerns over the ability for Australian businesses to compete internationally against the tax incentive regimes established and being introduced in other countries.

The submission outlined the case for a new tax incentive for Australia that builds on the R&D Tax Incentive and will provide the opportunity for Australia to compete with major trading partners for intellectual property (IP)-based businesses to bring their IP management operations, manufacturing and the associated spillover benefits (jobs, exports, etc) to Australia.

Recognising the importance of innovation to Australia’s future, policymakers have already taken one important step by implementing the R&D Tax Incentive. This incentive is an effective tool in promoting investment in research and encouraging collaboration between business and research centres in the development of new and improved products for Australians.

Countries all around the world are competing for investment in R&D and manufacturing, and most of them offer substantial incentives to attract the attention of global decision-makers. Preferential tax treatments are being offered by many countries.

AusBiotech believes Australia could more effectively compete for investment by reducing the corporate tax rate under defined circumstances that would encourage not only the development of new IP but also enable associated high-tech manufacturing to take place in Australia. Australia would benefit from a well-targeted tax incentive to attract and retain R&D once it reaches commercialisation, its benefits and the associated high-tech manufacturing, across all innovative industries.

As R&D and patent box incentives become more commonplace around the world, a number of governments have demonstrated that to stay ahead, it is necessary to offer competing environments. AusBiotech is advocating for the introduction of the AIM Incentive, a ‘patent box’-style incentive to keep home-grown IP once it reaches commercialisation, as well as associated manufacturing, in Australia.

AusBiotech recommends that the government consider adopting the structure of the UK model and adapt the policy to suit the Australian environment. Under the UK model, the definition of qualifying IP for the AIM Incentive purposes is limited to patents or a licence to a patent.

Australia needs to take action to remain competitive and relevant on the world stage, especially when economies such as the UK, France, Switzerland and China are already reaping the benefits of their patent box regimes. To maximise Australian innovation and reinvigorate the manufacturing sector in Australia, the existing R&D Tax Incentive should be complemented with an end-to-end tax regime that can secure Australia’s competitiveness for the future.

There are currently 10 countries in the world (nine in Europe and China) that have adopted a ‘patent box’ or ‘innovation box’ policy with many more looking to introduce similar regimes in the future. Australia should move now in order to compete.

The full submission can be found here.

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