Mon | Jan 22, 2018

Topaz Johnson | Recognising the value of innovation in Jamaican laws

Published:Friday | January 13, 2017 | 12:00 AM
Topaz Johnson

Recognising the value of innovation in Jamaican laws

There are few business leaders who doubt that innovation is important to the continued success of a business.

It may be that the number of definitions of innovation may rival the number of those business leaders; but one definition that seems useful for the current purpose is 'the successful exploitation of new ideas'.

While the link between innovation and the success of an individual business enterprise is popular, not to be ignored is the connection between the sustainable success of a country's economy as a whole and innovation.

This latter connection was articulated well by noted economist Paul Romer - now Chief Economist at the World Bank - who was quoted as saying "no amount of savings and investment, no policy of macroeconomic fine tuning, no set of tax and spending incentives can generate sustained economic growth, unless it is accompanied by the countless large and small discoveries that are required to create more value from a fixed set of natural resources".

It is not new that this connection is being made. Neither is it a novel notion that for innovation to make an impact in either an individual business or an economy there has to be in addition to the generation of new ideas, the recognition and facilitation of these.

However, the current combination of legal provisions in Jamaica that facilitates and provides recognition to the role of innovation in the economy is quite new. These have formed a part of the reforms brought about by the economic programme accompanying the country's agreement with the IMF. Consider some examples of these provisions.

The consequences of a business falling into distress or even failing are different from what existed prior to the Insolvency Act that came into operation in 2015. It contains rehabilitative provisions both for companies and individuals that were not contemplated under the previous laws. Taking the risks that are inherent in innovation may be now more palatable for those taking up the challenge to innovate.

The relative ease with which an unlimited number of types of assets can be provided and accepted as collateral under the Security Interests in Personal Property Act encourages both would-be innovators and creditors to think outside the box.

Encouragement to innovate can be seen in some of the tax incentive legislation which came into effect in January 2014. First, The Fiscal Incentives (Miscellaneous Provisions) Act - which was popularly referred to as the omnibus incentive legislation - repealed certain statutes that granted tax incentives to specific sectors of the economy so that various opportunities to reduce tax liabilities are available to a wider range of existing industries as well as industries that are yet to be created.

Fiscal incentivising of innovation

Second, some of the changes of the bases for granting capital allowances are demonstrative of the urge to promote innovation. Take, for instance, the expansion of annual allowances for capital expenditure in intellectual property rights, which was prior to 2014, limited to patents. The amendment to the Income Tax Act, which was effected then, allows for tax obligations to also be reduced in respect of costs for the acquisition or development of other types of intellectual property including geographical indications of source, trademarks, service marks, brands, copyrights, and Internet domain names.

There are other examples of the fiscal incentivising of innovation. One is that incentives are made available to economic activities approved as pioneer industries under the Income Tax Relief (Large Scale Projects and Pioneer Industries) Act. As the name of this statute implies, in order for an economic activity to be designated an approved pioneer industry, it must not be currently carried out in Jamaica on a substantial commercial basis and should involve or be intended to involve the commercial application of the results of scientific research. That activity, the act provides, must have favourable prospects of it being developed so as to have a transformational impact on the Jamaican economy.

The Special Economic Zones Act which came into effect on August 1, 2016, and which repealed the Jamaica Export Free Zones Act potentially provides reward for innovation.

It is true that what seem to be the most significant benefits to participants under the repealing act were available to free zone participants under the repealed act. However, under the Jamaica Export Free Zones Act there was a limited group of specifically named activities which could have been conducted.

On the other hand, the possibility of participation under the Special Economic Zones Act is open to an unlimited set of economic activities save for those specifically excluded.

Some economic activities which could have been conducted under the free zone legislation are excluded for the special economic zones. The excluded economic activities under the Special Economic Zones Act could be described for the most part as those which are already well-developed or as mature industries in Jamaica, including mining of natural resources, telecommunication services, regulated financial services and the retail trade.

While health services are excluded generally, the opportunity for research and development in the health services field within special economic zones is not ruled-out and may therefore present an opportunity for the exploitation of new ideas.

Apart from these manifest examples of legal provisions connected with innovation, various other legal changes during the period of the economic reform programme have an indirect bearing on the role innovation is recognised to play in economic competitiveness.

Not least of these are the various methods of strengthening the financial system which have been enshrined in law, with more to come in 2017.

It would, however, be difficult to argue successfully that enactment of appropriate legislation is all that is necessary to build a strategy for economic success through innovation. There can hardly be a definitive list of synergistic components necessary to have innovation work as desired. Some that have been posited include having a system of commercial research, sufficient available sources of risk capital, a technically skilled workforce and an entrepreneurial culture.

The degree to which these and other factors exist in Jamaica may vary from one mind to another. There is no doubt, however, that articulating and protecting the encouragement to innovate by means of the law is a factor to be included in any such list developed and that considerable progress has been made on this front within a relatively short period.

Topaz L.M. Johnson is an attorney with the law firm DunnCox in Kingston.