More tax incentives to encourage R&D?

BUDGET 2019 will be released in November. This document will provide a clearer understanding of the government's fiscal direction.
In considering areas that deserve fiscal incentives, research and development (R&D), innovation and commercialisation (RDIC) stands out.
Should RDIC be privileged for tax incentives?
Traditionally, it has been proposed that the government should fund RDIC initiatives.
RDIC is very expensive, often it may not benefit private companies and may not attract funding from the private sector.
It is argued that because of these characteristics the government must intervene to support RDIC.
Is there another take?
In other words, should the government give tax rebates for investment in RDIC?
Should companies be given tax exemptions for patents and copyrights earned or only for equipment purchased and laboratories built?
Multinational corporations (MNCs) can promote RDIC to their benefit. MNCs would locate to Malaysia if it is to their benefit.
Most often, they would have negotiated with the Malaysian Industrial Development Authority for appropriate terms when locating in Malaysia.
This would include fiscal incentives to conduct R&D as part of their operations in the country.
MNCs have the capital and capacity to engage in RDIC.
The companies that really need the government's support are the small and medium enterprises (SMEs). After all they make-up 80% of the companies in the country.
But we must look at fiscal incentives differently.
How differently?
In the digital economy, RDIC has unusual features. Firstly, a large number of innovations do not require huge capital outlays.
Second, many innovators are non-graduates.
Three, many tech innovators reach the billionaire mark before they are 30 years of age.
The new researchers are young, inquisitive, passionate, and know what the markets want.
The support that the new breed requires is not tax breaks. They would need help wading through the bureaucracy of setting up a company, applying for patents and bank loans.
In this scenario, mentoring is more relevant than fiscal support.
In view of Industry Revolution 4.0 and the digital economy, the thrust of Malaysia's RDIC should change its orientation.
Low physical capital and high knowledge content should take precedence over projects that require heavy physical capital and high researcher participation.
Coming back to SMEs, they have been accused of being disinterested in RDIC.
First, SME owners are said to be more interested in accumulating personal assets (a Porsche, perhaps) rather than in growing the company.
Second, SMEs are content with maintaining their national market shares and are not always keen to expand regionally or globally.
Fiscal incentives to undertake RDIC will not overcome the lack of ambition and a short-term view of their businesses.
However, a perspective of RDIC, which does not require a large number of researchers and bulking investment, may be more appealing to SMEs.
Reorganising R&D to suit SMEs makes more sense than trying to drastically change their mindsets.
What role do universities have in all of this?
Universities should encourage entrepreneurship among their students, creating students who will explore ideas that fit market needs.
We need graduates who are explorers of ideas and job-generators, not those who will add to the queue waiting for government jobs.
By the same token, university lecturers should be willing to make niche software, wrinkle-free shirts and, perhaps, umbrellas that can be opened without any fuss; they should be able to bring mechanical engineering, nanotechnology and machine-individual interface down to the level of consumer products.
The university reward structure should change accordingly.
Lecturers should be rewarded for networking with and contributing to the research efforts of industry.
They should be encouraged for fostering entrepreneurship among students.
We need creativity and entrepreneurship, not more government subsidies and handouts.
A new research paradigm is urgently required.
Dr Shankaran Nambiar is a senior research fellow at the Malaysian Institute of Economic Research. He is author of The Malaysian Economy and Malaysia in Troubled Times.