To increase Australia’s global competiveness in innovation and manufacturing, a collaboration of Australian industry bodies and companies is urging the Federal Government to implement a ‘patent box’-style tax incentive, known as the Australian Innovation and Manufacturing (AIM) Incentive, which would offer a reduced tax rate on qualifying profit from intellectual property (IP).
Australia already supports the research and development (R&D) phase of IP creation via the R&D Tax Incentive. However, this R&D is vulnerable to being sold, managed or manufactured overseas at the critical point due to a lack of supportive policy in Australia. This sees the resulting community and economic benefits – such as jobs, exports, manufacturing and clinical trials – head offshore with it.
IP is highly-mobile and can be easily separated from the jurisdiction where it is developed, and its management and manufacturing migrated to low-tax jurisdictions that offer on-going incentives. If Australia is serious about becoming a knowledge-based economy, we need public policy that will encourage IP and its flow-on benefits to stay in Australia, thereby creating local wealth and jobs.
Manufacturing is one of the major sources of innovation in Australia. While the sector makes up just 8% of the economy, it is responsible for a quarter of all investment in R&D. Innovation and manufacturing are different sides of the same coin. A constant push-pull operates, whereby innovation in product design encourages innovation in manufacturing processes, and vice versa.
For this reason, the Harvard Business School advises against the separation of R&D and manufacturing.
The AIM Incentive is designed to address the gap that leaves our IP vulnerable and support Australian innovators and manufacturers, whilst retaining our home-grown IP.
The implementation of the AIM Incentive should make the commercialisation of IP and manufacturing in Australia more genuinely viable for businesses, especially, if coupled with other measures, such as cutting red tape and increasing flexibility in industrial relations.
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