Conor Lenihan
Ceist:249 Mr. C. Lenihan asked the Minister for Finance his views on providing incentives to Irish firms to invest in research and development. [22898/98]
Written Answers. - Research and Development.
Conor Lenihan
Ceist:250 Mr. C. Lenihan asked the Minister for Finance his views on whether tax credits are an appropriate vehicle for encouraging Irish firms to invest in research and development. [22899/98]
I propose to take Questions Nos. 249 and 250 together.
Incentives for investment by Irish firms in research and development are provided mainly in the form of direct grant aid and currently over £25 million per annum is provided for research and development under the science and technology development programme, which is funded by the Exchequer and the EU.
Tax incentives have a limited role to play in promoting investment in research and development though there are a number of specific schemes in place, such as BES relief for commercial research and development and enhanced allowances for research and development expenditure under section 766 of the Taxes Consolidation Act, 1997.
As the Deputy will be aware, the Government plans to introduce a single 12.5 per cent corporation tax rate for trading income which represents a major incentive for all businesses in the State. This will help to ensure that there are adequate after-tax profits for investment by firms in research and development.
Agreement has been reached with the EU Commission on the timetable for phasing out the 10 per cent rate for manufacturing and certain internationally traded services. This will require substantial reductions over the coming years in the standard corporation tax rate, currently 32 per cent rate, so as to facilitate the introduction of the 12.5 per cent rate by 1 January, 2003. Given the significant Exchequer cost associated with this, a much more restrictive approach will be required not only in relation to the maintenance and scope of existing tax incentives but more especially in the provision of any new ones. In this context, therefore, I would not see tax credits as an appropriate vehicle for encouraging investment in research and development.