China Economic Review: "Additional Deduction" Promotes Innovative Enterprises | Policy | Comment
Recently, the State Administration of Taxation and the Ministry of Finance issued a notice to optimize the policy of deducting research and development expenses from pre payment applications, and to advance the time when enterprises can enjoy preferential treatment by an additional three months. From increasing the proportion of additional deductions, expanding the scope of R&D expense collection, to advancing the time when enterprises enjoy preferential treatment, this important policy lever to encourage technological innovation is playing an increasingly important role.
Innovation is the primary driving force for development and holds a core position in China's overall modernization construction. The latest statistics show that China's innovation indicators have jumped from 34th place in 2012 to 11th place in 2022 in the global ranking, entering the ranks of innovative countries. Behind this extraordinary leap is the strong support and promotion of a series of national policies.
As an important institutional arrangement to encourage enterprises to increase their R&D investment and strengthen their position as the main body of scientific and technological innovation, the policy of adding and deducting R&D expenses is becoming increasingly well-known in society. How does this tax preferential policy promote innovation? In short, when calculating the taxable income of corporate income tax, in addition to deducting the actual amount of research and development expenses incurred by the enterprise, a certain proportion can also be deducted before corporate income tax. This means that the more R&D investment a company has, the more taxes and fees it can reduce, forming a virtuous cycle of "increasing R&D investment - increasing tax reduction - further increasing R&D investment". This is a targeted and high-value preferential policy specifically designed to support technological innovation, with a tax reduction scale of 700 billion yuan in 2022. According to statistics, the average annual growth rate of enterprise R&D investment over the past five years is about 25%, demonstrating the outstanding role of policy incentives.
In recent years, the country has repeatedly increased the proportion of R&D expenses to be deducted, optimized and improved policy content, and the number and amount of enterprises enjoying preferential treatment have continued to increase. Technological innovation is never-ending. It should be noted that although China's R&D investment continues to reach new highs, further expansion of scale and optimization of structure are still needed. The next step is to continue to accurately and effectively implement the policy of adding and deducting research and development expenses, further stimulating the innovation and development momentum of enterprises.
Firstly, stabilize expectations on an institutional level. Enhancing innovation capability cannot be achieved without genuine investment of gold and silver. The R&D investment of enterprises is often huge, and it is necessary to hedge the uncertainty of market risk through the certainty of policy support. This year, the State Council has decided to increase the pre tax deduction ratio of R&D expenses for eligible industry enterprises from 75% to 100% as a long-term institutional arrangement. This important measure effectively stabilizes enterprise expectations, helps enterprises to make long-term plans, boldly arrange research and development activities, and increase research and development investment, which is more conducive to promoting technological innovation.
Secondly, optimize services through implementation. In recent years, the policy of adding and deducting research and development expenses has been repeatedly optimized and advanced at the time of enjoyment, promoting the policy dividend to benefit enterprises faster and better. The implementation of the policy of adding and deducting research and development expenses involves departments such as finance, taxation, and science and technology. It is necessary to establish a work coordination mechanism, strengthen work coordination, form work synergy, strengthen management and services for enterprises before, during, and after the event, simplify and optimize the enjoyment process, and ensure that policy dividends are fully utilized. At the same time, strengthen policy evaluation during implementation and respond promptly to address issues raised by enterprises.
In addition, it is necessary to strike a combination of fiscal, tax, and financial policies that promote technological innovation. China has established a tax preferential policy system that covers a wide range of areas, offers strong incentives, and covers all aspects of the entire process of enterprise innovation. In addition to the R&D expense deduction policy, other relevant tax support policies, such as preferential policies for high-tech enterprises, software enterprises, integrated circuit enterprises, and other fields, are highly targeted. At the same time, it is necessary to increase fiscal investment, promote high-level technological self-reliance and self-improvement, and promote a sound industrial technological innovation system. Promote financial institutions to provide more precise support for enterprise research and development, and guide financial vitality to irrigate technological innovation.
Only innovators advance, only innovators win, only innovators are strong. The R&D expense deduction policy, along with other related policies, is creating a favorable innovation environment to inspire enterprises to be willing and daring to innovate, and to ignite their passion for innovation, injecting strong impetus into high-quality development.
