Entrepreneurs Will Not Invest in R&D Without New Incentives

 “Over the last decade, the research, development and innovation policy in Slovakia has lacked a uniform and thought-out concept of the regulatory environment, a clear and consistent set of goals and appropriate resources that would lead to the harmonisation of various solutions to the relevant problems. Therefore, it is not a surprise that R&D expenditures stagnated at the level of approximately 0.47% of GDP over the last decade with no sign of even a slight upward trend,” said Martin Rybár, Tax Director at Deloitte responsible for R&D and government incentives.

The survey revealed that 8% of the surveyed companies in Slovakia spend absolutely nothing on R&D. Out of the companies that do spend funds on R&D, almost 31% spend less than 5% of their revenues, 8% spend more than 5% of their revenues and 47% of the surveyed companies spend more than 10% of their revenues on R&D.

The government has ambitious plans to increase expenditures in this area of the Slovak economy to at least 1.2% of GDP by 2020. Thus, the engagement of companies in meeting such a plan is very important.

Therefore, in our survey we wanted to identify external factors that would be effective in stimulating Slovak companies to increase their R&D expenditures. The respondents indicated in their responses that the availability of a qualified workforce in R&D and the volume and availability of more types of aid (financial contributions, tax relief etc) are the most important factors. The protection of intellectual property rights and the stability of the regulatory environment are considered less important external factors increasing R&D expenditures.

As regards the lack of qualified R&D specialists, companies admit that they are significantly affected by this factor. Some of them indicated that they had to reduce or completely cancel R&D projects as they did not have qualified R&D specialists. The lack of appropriately-qualified staff on the market is the most emphasised issue; the only companies that do not consider this a significant factor are those with higher R&D expenditures and those who train their own employees.

More than two thirds (67.7%) of Slovak companies cooperate in implementing R&D projects with third parties. The most common partners in such cooperation are universities and academies of science followed by private scientific institutions and R&D institutions. 16% of respondents also consider the acquisition of start-up companies or separating departments of companies with potential for R&D.

While the share of R&D expenditure in Slovakia amounts to just 0.68% of the total GDP, as a result of which the country ranks last among the countries surveyed in the ranking, a much better situation exists in the Czech Republic (1.84%) followed by Hungary (1.12%), Croatia (0.77%) and Poland (0.75%).

The most important factors affecting R&D in all countries include the availability of other types of incentives and the volume of the relief and benefits provided. Both systems of support (programmes of financial contributions and tax incentives in R&D) are applied in all countries. However, the use of tax incentives is insufficient in all countries. More than 25% of respondents in the region do not use them due to the uncertain approach of the tax authorities and unclearly-defined R&D activities.

The situation in Slovakia is similar. Respondents have much less experience in tax incentives than in grant programmes: 16% of respondents claim they know various tax incentives, whereas only 2% or 3% thereof have actually used them.

“One of the methods to increase R&D expenditures is to continue to enhance awareness of the existing financial contributions and incentives in this area and to add new instruments in order to motivate companies to increase their R&D expenditures,” said Martin Rybár.

The R&D Survey includes the opinions of the CEOs, CFOs, tax experts and R&D specialists of 62 medium-sized and large Slovak companies and other institutions. Participants were asked to complete a web questionnaire consisting of 15 sections that was available on the survey website in February and March 2013. The survey was conducted not only in Slovakia, but also in Poland, the Czech Republic, Hungary and Croatia. In total, 233 respondents participated in the survey.

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