Reduction of investment in innovation in Good Law: economic crisis or the mechanism?

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Rafael Levy, Allagi consultant

Was published on December 23, 2013, the Ministry of Science, Technology and Innovation (MCTI), the Annual Report of the Use of Tax Incentives of the Good Law, base year 2012. A first superficial analysis would not have big news to discuss: the report follows the trends of previous years. However, evaluating more fully its contents, comparing with other statistical data, we see there are some points that show the situation of crisis now facing this support mechanism.

At first reading, we see statistics that appear to be encouraging when we see an increase in the number of companies who claim to have taken advantage of tax incentives (of 962 firms in 2011 to 1042 in 2012). However, of this total, only 787 companies (75%) had their approved forms after checking the MCTI of the information provided, which are therefore classified as beneficiaries of the Good Law by report. In other words, the “failure rate” of companies by MCTI increased considerably from 20% to 25% last year.

Comparing this with the other data, we also see another disturbing information: expenditures on R & D fell declared in encouraging R$ 8.6 billion in 2010 to R$ 6.8 billion in 2011 and R$ 5.2 billion in 2012 (a surprising decline of approximately 39% in two years, even with the total number of firms always increasing). Why this decline? Was it linked to increased failure of
businesses or factors outside the control of the managers of the facility?

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The report itself justifies this reduction by the economic crisis that some industries face:

(…) can be said that some bad results in the economic field have contributed to a significant number of industry segments (…) will gradually reduce its investment in R & D, explains why the record fall in the total value of investments, in Base Year 2012 “(page 25).

However, when we compare the scenario presented in this analysis of MCTI with PINTEC statistical data 2011 (Research on Technological Innovation IBGE), whose results were recently released, we can draw other conclusions.

According PINTEC 2011 the R & D market grew from 2008 to 2011, from $ 15 billion to U.S. $ 20 billion (33% increase), while in the same period the declared values ​​on the Law of Good decreased from R $ 8.8 billion to R $ 6.8 billion (down 23%). Although these numbers are absolute values ​​per company also differ greatly between both sources.

Thus, we can see that the reason for the reduction of investment stated in the Law of Good is not due to lack of investment in innovation, but only the reduction of the stated investment that specific support mechanism. This demonstrates a serious legal and operational deficiency of this important support mechanism, because although the extent and spread of the same have increased (as reflected in the growing number of companies), the
insecurity and lack of conceptual alignment between the terms defined by the law and the interpretation of MCTI and the Internal Revenue Service (RFB) on the mechanism leading to this gradual “abandonment” of the mechanism by firms.

This lack of alignment and conceptual inconsistencies can be observed within the report itself. For example, in the introduction to the document, the authors highlight the great contribution of the Good Law for cooperation through open innovation, while the rules defined by MCTI and RFB in the operationalization of the mechanism preventing the incentive for collaborative
projects among medium businesses or large:

“For example, the model of cooperation mechanism between companies, suppliers, universities, research institutes, networks and sectoral research micro and small enterprises - MPE, as stimulated by the Good Law, has been a way of enabling such assumptions, which has facilitated the emergence of very models of interactions, such as:. open innovation, technology partnerships, corporate venture, venture capital, among other alternatives partnerships”. (Annual Report the Use of Tax Incentives Base Year 2012, page 4)

“Art 4 § 9 Except as provided in § § 1 and 3, is not the use of incentives provided in this Instruction regarding employed or transferred to another entity for execution of technological research and development of technological innovation in amounts allowed order or contractors. ”

We already covered here in this space (http://www.wenovate.org.br/boletim/
2013_026_julho.html#fomento) of another large misalignment caused by the introduction of MCTI through a new concept in the innovation environment entitled “Engineering Development”.

The first consequence of this was that we had this year no automaker automotive company in the list of approved at MCTI. Ie, the Ministry is using new concepts introduced by other legislation (INNOVATE-AUTO) to judge the expenditures declared in the Good Law by the automotive sector.

In general, all these factors show that is not enough the creation and modification of new laws and mechanisms to encourage investment in innovation in Brazil. Ensuring a good operationalization of them is also crucial for the success and spread the use of these mechanisms in order to achieve increased competitiveness so important that our country deserves.

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