The Ministry of Science, Technology and Innovation (Minciencias) has among its specific objectives the definition of administrative and financial instruments through which the allocation of public and private resources to the promotion of science, technology and innovation is promoted.
Among these instruments to promote investment in the private sector (individuals or legal entities) are the Tax Benefits in Science, Technology and Innovation (CTI). This instrument enables companies and individuals to receive tax discounts, or tax credits, for their investment or participation in R&D&I activities. In order to access this benefit, companies and individuals must submit their proposals to the Ministry's call and obtain the approval of the National Council of Tax Benefits (CNBT), chaired by this portfolio.
Therefore, in this text we intend to provide some reflections on this instrument, in order to draw attention to its main characteristics and propose changes to increase its relationship with the growth and impact of the CTI system.
The Tax Benefits (BT) have four lines of support for companies, each with its own characteristics. To participate, the initiatives must be approved by the CNBT. (See figure 1):
- Tax benefits for investment in CTI or linking human capital with doctoral training in companies: They are granted to companies that carry out R&D&I projects in partnership with an actor recognized by the National System of Science, Technology and Innovation (SNCTI), through two channels: tax deduction and discount for investments in CTI projects. , or the tax credit for MiPyMES for investments in CTI projects.
- Income not constituting rent and/or occasional profit: Awarded to personnel who develop science, technology and innovation (ACTI) activities within the framework of a project approved by the CNBT.
- VAT exemption for imported equipment and elements: dedicated to technological development centers and educational institutions that import equipment within the framework of a project approved by the CNBT.
- Tax benefits for donation in science, technology and innovation: These are deductions from the amount donated to the Francisco José de Caldas Fund (FFJC) to finance CTI programs and projects with the approval of the CNBT.
In the last 12 years, the quota assigned by the CNBT has increased exponentially, if we take into account that in 2022 it reached a maximum of 2,1 billion pesos, when in 2010 it was less than $300.000 million (See figure 2). This quota is an amount that the Colombian State stops receiving for income taxes, to encourage companies to invest in R&D projects. As stated in the Minciencias junction report, pFor the period 2022-2031, more than 30 billion pesos will be allocated, of which $10 billion are for the General Royalties System (SGR) and $20 billion for Tax Benefits, which shows the importance that this instrument will have in the future.
The projects that companies present to the call for tax benefits can be framed in three typologies :
- Research: includes basic research projects and applied research, which are modalities for the generation of new knowledge.
- Technological development: includes experimental development and the application of research results on a prototype scale.
- Innovation: incorporates innovation in processes, products or services.
What has been achieved with this financing instrument
The Minciencias accountability report for the year 2021 shows that in the form of tax benefits for investment in CTI, between 2019 and 2021, 4,4 billion pesos were assigned to 277 large companies, 136 medium-sized companies, 61 small companies and 21 micro-enterprises. While in the line of linking high-level human capital to companies, 7 requests were registered.
As for the other lines of the call, the details for each type of exemption are presented below:
- In 2021, for the line corresponding to income not constituting rent and/or occasional profit, 49 projects were registered and 7 filed.
– In that same year, in terms of VAT exemption for imported equipment and elements, 5 projects were classified by the open window mechanism and 28 projects were classified by administrative act.
– In the BT by donation modality in CTI, resources were donated to finance university scholarships for a value of 4.136 million pesos in the regions of Bogotá, Antioquia and Valle del Cauca.
What these results tell us at the close of the Duque government
The results of the last three calls (869, 904, 913) indicate that 847 projects were presented, of which 497 were approved, corresponding to 58,87% of the proposals presented. Half of the projects were submitted to the process innovation typology, to improve the company's operational functions and promote efficiency and competitiveness; while 25% of the projects were framed in product innovation, to develop a new or improved product. In this way, 75% of the proposals were concentrated in these innovation modalities and consequently they dominated the financing through the BTs. Figure 3 presents the distribution of the percentages between the different types of projects that were approved by each of the calls.
In contrast, basic research and technological development represented 21,73% of the projects validated by the CNBT, mainly in the field of technological development, taking into account that in these three years only 2 basic research initiatives have been financed ( calls 869 and 913).
Observing these results, it can be concluded that the approval of 100% of the assigned quota in 2021 would show a strong motivation on the part of the companies to take advantage of this tax incentive. The figures show that there is a demand for this type of instrument, which could explain the decision of the national government to give priority to these incentives for the coming years, by projecting the quota of 20 billion for the period 2022-2031.
Additionally, the accountability report indicates that “the tax benefits strategy is one of the pillars to increase investment in Research and Development (R&D).
However, the report falls short on recommendations and future challenges to encourage an increase in this investment and its contribution to the development of more basic and applied research projects, given that it only recommends improving the investment measurement system (Investment in private sector R&D as a percentage of GDP), through four strategies:
- Inclusion of investments in innovation made by participating companies to access the Tax Benefit quota.
- New conduct of the country R&D survey, by DANE, results will come out in August 2022.
- Signing of an Agreement between DANE and the OCyT to strengthen the measurement of R&D and ACTI.
- Delivery of the R&D measurement by DANE to the OCyT to calculate the total investment in ACTI 2021.
Concerns and recommendations for the new Petro government
According to CONPES 4069, the Tax Benefits instrument has a high potential to encourage investment in science, technology and innovation in the country. This is important, since the new government is expected to process a tax reform, and it is necessary to remember the role that this instrument has in building a society based on knowledge. In addition, the weight that it will have in the coming years within state investment makes it imperative that the community analyze and debate the configuration of the instrument; this, in order to contribute to its improvement and relevance to the needs of the country.
One of the main sources of financing for the development of the CTI Policy will be Tax Benefits ($20 billion); however, it could be intuited that a new strategy will be necessary to break the trend towards innovation projects and set up a balance that includes projects that generate new technological developments and new knowledge (basic research).
There are sufficient reasons to propose it. On the one hand, we have that the resources of these projects come from the budget of the companies, which receive an approximate benefit of 50% of the investment in their income statement for the following year of the investment. Additionally, very few companies have the capacity to go one step further towards technological independence: only 13 companies have an R&D unit recognized by the Ministry of Science y 2 are highly innovative. Hence the need to design a new mechanism to bring knowledge-generating entities and companies closer together. The conditions of this instrument will have to generate sufficient confidence in the actors so that they bet on this type of investment, contributing to the development of projects that bring technological independence closer and the transition towards a knowledge economy.
In addition, we emphasize the need to promote that initiatives with this type of instrument are related to the great goals that we have set for ourselves as a country, reflected in the missions and challenges posed by the Mission of Wise Men and Conpes 4069. Coherence between the policy instruments is essential to align the initiatives of the system's actors and bring closer the objectives they pursue.
On the other hand, The possibility of modernizing the BT modality in the line of donations using fintech is raised, since they would facilitate the directionality of resources, allowing the donor the option of allocating part of their donation towards the focus or challenge of their interest. In this sense, the initiative of donations for tax benefits could be strengthened a little more, using fintech developments to finance specific research projects, which make use of, for example, strategies such as crowdfunding to collectively finance research projects that are of interest to private actors. This is a possibility that is already being developed at the international level and could be an interesting mechanism to apply in the Colombian case.
In conclusion, we hope that the applied nature of this instrument does not mean that investment in basic research in the different areas of knowledge is neglected. It is necessary to promote that part of the resources of this call serve to support the calls to research projects without an immediate applied purpose, but which are essential to build frontier knowledge absorption capacities and facilitate its incorporation into radical innovations. Thus, we want to highlight the need to give space to instruments to promote investment in basic and experimental research.
COROLLARY: In the current design of the call for tax benefits, companies present projects requiring only the endorsement of an actor recognized by the SNCTI. The recognized actors can be researchers as natural persons, research groups under the legal representation of the institution that endorses them, OTRIs, Technological Research and Development Centers, etc. In this sense, researchers as natural persons can give endorsement, without the need to go through the internal processes of institutional endorsement of their employing institution. This figure means that many projects are not formally articulated to strengthen the university-company alliance with long-term win-win relationships.
 Management Report 2021 – Ministry of Science, Technology and Innovation
 Sectorial report of the management closing balance – SCIENCE, TECHNOLOGY AND INNOVATION SECTOR 2018-2022 – National Planning Department.
 Typology document for scientific, technological or innovation projects version 6)
We thank Tania Arboleda, Adriana Díaz, Juan Pablo Centeno, and Alberto Aparicio for their review and comments.
Andrea Navas Calixto (@acnavascalixto)- Chemistry – Master in Interdisciplinary Development Studies.
Main Image: fernando zhiminaicela en Pixabay