R&D tax incentives in the world and stimulation of innovations in Ukraine

Abstract

It is considered in the article that innovation development of Ukrainian economy depends on the effective tax policy. The article proposes to improve tax incentives for business activities in the field of research and development (R&D). The approach to substantiate the targets of tax policy in the sphere of innovation development of Ukrainian economy taking into account the world experience of using R&D tax incentives is proposed. The analysis of the transformations of the tax legislation in Ukraine showed that the institutional support of innovative development of industry has been slow and not conducive to stimulating investment activity. The experience of countries that are actively developing their industries on the basis of innovation suggests that the tax exemption is not an effective tool to stimulate business entities in strategically important sectors of the economy, and the economy as a whole. Tax incentives such as tax credits, tax allowances, accelerated depreciation, and reduced income tax rate are widely used in the world practice. The R&D tax incentive government program provides financial benefits to companies investing in development of new or improved products, processes, services, materials or devices. The range of eligible activities is extremely diverse and may include any work undertaken to achieve improvements in performance, functionality, usability, efficiency or environmental impact. The vast majority of tax incentives are based on corporate income taxes. In the past years countries have shifted from tax incentives that only apply to increments in a firm‟s R&D expenditure (incremental schemes) towards incentives that apply to total R&D expenditure (volume-based schemes). Their use is determined by the strategic directions and priorities of social and economic development of the government. The role of R&D tax incentives in innovative development is significant. Recommendations for improvement of profit taxation of investment activity, namely the implementation of the tax legislation of Ukraine R&D tax incentives in the form of investment tax credit for R&D are justified. This will be deducted from the amount of corporate income tax of the costs of innovation, thereby reducing the amount of the tax or reduce the amount of tax liability generated. This will help to promote their investment activity and socio-economic development on the basis of innovation.