Section 12J - ain't no sunshine when it's gone
By Neill Hobbs
Over the years Sars has not only transformed itself into an efficient revenue collection entity, it has also come to play a key role in stimulating growth in the fiscus through various different incentives aimed at growing the economy. Arguably one of the most effective instruments introduced by Sars to date has been Section 12J, which was introduced in 2009 and affords investors a 100% tax rebate on amounts invested into Section 12J-listed venture capital companies. The intention of S12J is specifically to bolster investment into the small business sector and, in doing so, to create jobs that can in turn contribute to the country’s tax base in due time. To date over R9.3 billion of taxpayers’ funds has been invested into various SMEs via S12J venture capital investment firms, creating approximately 10 500 jobs.
When it was introduced, the venture capital incentive was given a 12-year lifespan and was subject to a “Sunset Clause” which stipulates that no new S12J deductions will be granted after June 2021. As it stands, this gives taxpayers one more tax season to make the most of the incentive and for SMEs to benefit from these investments. It seems that we are just out of the starting gate and our race may be cut short.
Not only are enlightened taxpayers shaking their heads at S12J’s looming “expiry date”, the small- to medium-sized businesses that have seen the material benefits of this incentive – many of whom find themselves in dire need in light of the Covid pandemic and its economic consequences – are calling on Sars to consider extending the incentive. Treasury is in the process of requesting comment from the sector and is expected to conduct a review of the success of the legislation in order to make a decision regarding its future.
Within our current investment portfolio, SMEs we have invested in are rallying for this extension. Cape Mohair, a Cape Town-based sock manufacturer, who through our Section 12J funding was able to acquire an ailing clothing manufacturer and save the jobs of over 130 employees, has urged National Treasury and Sars not to close the 12J equity resource.
The songsheet sounds similar for another business in the Anuva fold: MasterCare, who as one of South Africa’s oldest appliance specialists, credits the Section 12J incentive for their successful turn-around. Through careful incubation and coaching, our involvement saw the business return into a profitable one, and in doing so saving existing jobs and creating new ones. Now the business finds itself poised for spectacular growth after a difficult period.
Anuva has also used its knowledge base to come to the rescue of a cash-strapped pharmaceutical company, who found themselves on the edge of an opportunity created by the Covid-19 pandemic, without any equity to see it through. Leon Giese of BioDelta attests to the fundamental role the Section 12J incentive played in swiftly reacting to the challenges they faced at the beginning of lockdown and not only turning them into profitable opportunities, but, more importantly, keeping his employees paid and the livelihoods of their families afloat.
It was recently reported that Covid-19 will just about wipe out SA’s middle class. Many businesses in the SME sector find themselves on their knees, in need of any assistance they can garner.
We’ve been moved into action and now more than ever realise what a significant role we play in the survival of our economy; but we need more time. To close the incentive now would be a tragedy; we’ve only just got going, Mr. Receiver. Section 12J has the potential to step in as a source of much-needed funding and to generate great returns for investors, while fulfilling government’s intention of creating jobs and stimulating small business growth.
Neill Hobbs is the CEO of Anuva Investments