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Strategic plan

The Innovation Incentive Law wants to make researchers hiring easier

The Innovation Incentive bill that the government will send up to Congress by the 3rd of April proposes the lifting of social taxes on the payroll of qualified people who are hired by business for research and development (R&D). The idea is to expand the number of researchers in companies and to kick start innovation, a concept that has been defended by FAPESP’s scientific director, José Fernando Perez. The notion was well received by the Ministry of Science and Technology (MST), responsible for the structuring of the bill that will be evaluated by other ministries, before being sent to the legislative.

Also bearing fruit was the suggested alteration to Law No 8,661 of 1993 – dealing with stimulating industrial technology training by means of Industrial Technology Development Programs (PDTI) and Agricultural Technology Development Programs (PDTA) -, presented by the National Confederation of Industries (CNI). The two programs – that originally forecast a 8% drop in the taxation collected from innovating companies – stopped being attractive to companies when, in 1997, a fiscal package established a type of competition between the deductions in income tax of a business in R&D investments with the resources destined by companies to the Food for Workers Program (PAT), up to a limit of 4% of the due taxes. For example, during 2003 and 2004, only six companies made use of the benefits of the programs. The government’s intention is to create new rules for the concession of incentives for Law No 8,661 – taking into consideration the hypothesis of removing the PDTA and PDTI programs – that would allow for better application of the resources.

Hiring doctors
Perez’s proposal was presented to the National Council for Science and Technology and defended in an article published in the newspaper Folha de S. Paulo, signed as well by Fernando Reinach. It forecasts the lifting of all of the social taxes involved when hiring doctors for R&D activities – the bill that is being put on paper by the MST mentions qualified people for research activities. This type of contract would be valid for a period of ten years counted from the moment of obtaining the title of doctor of science, valid by a post graduate course that is recognized by the Ministry of Education (MEC). The salaries paid would be considered as additional expenses and a percentage of this spending could be set against the operational profit of the companies. “The value of the cutback is very little when compared with the investment made by the taxpayers – more than R$ 840 million annually – in the formation of doctors and with the expected return”, argues Perez.

The universe of those who might benefit can easily be verified, since the list of graduates with doctorate degrees can be found in public databases. In Perez’s accounting, the employment of a doctor in a company generates from five to seven other jobs as technicians, increases contact with the academic system, permitting the identification of demands and offers of research to be developed in partnerships.

The hiring of researchers by companies should change the rates concerning innovation. During 2003, Brazil graduated around 8,000 doctors, more than South Korea. But the total number of doctors employed in Brazilian companies was lower than 29,000 during 2001, according to the Brazilian Institute of Geography and Statistics (IBGE). During the same period, 94,000 researchers with this title had been hired by South Korean companies. This difference helps to explain the performance of the two countries as to the number of patents filed in the United States, in the year 2001: there were 120 Brazilian patents as opposed to 3,500 South Korean patents.

Business investment
Brazil invests 1% of its Gross Domestic Product (GDP) in R&D. Company participation accounts for 0.4% as opposed to 0.6% from public resources. The country would like to raise this overall percentage to 2% of its GDP, a level of investment similar to that of developed countries. “This strategy demands that  entrepreneurial investments be tripled”, says Carlos Henrique de Brito Cruz, the rector of the State University of Campinas (Unicamp) and FAPESP’s newly nominated scientific director.

For this growth to occur, he added, it is necessary that the State create a stimulating environment for entrepreneurial investments, through incentives – that would be introduced for approval within the new law – along with subsidies. “These two approaches towards support, nevertheless, will only come to fruition if the country has an adequate judicial environment, which respects intellectual property rights, along with legal and economic stability”, he underlines. The desired stability also includes an effective National Institute for Industrial Property (INPI), technology institutes trained to support research and universities qualified to provide support towards innovation.

Brazil currently can count upon, more or less, a dozen incentive mechanisms that imply a fiscal reduction of R$ 2 billion annually and that result in entrepreneurial investments to the order of R$ 5 billion. Or that is to say, for every R$ 1 of incentive, R$2.5 are invested. In the countries that belong to the Organization for Cooperation and Economic Development (OCED), the relationship between fiscal reduction and investments is in the order of 1 to 9, which clearly shows the low efficiency of the Brazilian policy on fiscal incentives. “The solution lies not in spending more, but in making use of adequate tools”, emphasizes Brito.

However, for small companies the best policy of stimulation is a subsidy, or that is to say, the direct application of money. “In this case, some mechanisms are already in existence, supported by the sectorial funds such as the Human Resources Training program (Rhae) and the Research Support in Companies Program (Pappe), both from the MST or FAPESP’s Small Business Innovation Research (PIPE) program”, Brito points out. However, he emphasized that this type of program should be multiplied. The Innovation Law itself, passed on the 3rd of December last year, also forecast some mechanisms that need to be regulated so that they may then be defined as “practical mechanisms”.

Greater incentive
The bill on Innovation Incentives is also being debated by the Technology Board of the Federation of Industries of the State of Sao Paulo (Fiesp). The entity is also asking for a reduction in labor costs in the hiring of personnel for R&D and the reformulation of the current legislation on fiscal incentives, considered to be inefficient. Line yourself up with the Confederation of National Industry (CNI) proposing the reformulation of Law No 8,661, among other measures.