Section 12J: Putting your capital to work to create meaningful jobs
“Small, medium and micro-sized enterprises (SMMEs) are the engine room of our economy,” says Neill Hobbs, Director and co-founder, at Anuva Investments.
“Rampant unemployment and lacklustre GDP growth will only be addressed through teamwork between government and the private sector, with the former implementing ‘business friendly’ policies and the latter ensuring there is enough capital‘on tap’ to fund new and emerging business ventures”.
South Africa’s 2019 general election will soon get underway with the electorate choosing one or other of the dozens of contesting political parties. As the queues ebb and flow around the various polling stations countrywide the conversation will undoubtedly turn to solving the country’s economic woes, not least the unemployment timebomb.
Jobs and the ‘promise of jobs’ have featured prominently in both the media and party manifestoes in recent months because there is consensus that solving the jobs problem will make burning issues such as inequality and poverty easier to address.
One of the ways in which taxpayers can contribute to meaningful jobs creation and growth is to invest in section 12J compliant venture capital companies (VCCs). Section 12J, introduced by the South African Revenue Services (SARS) in July 2009, seeks to stimulate the local economy and create jobs by offering participating taxpayers a 100% tax allowance on their investments into VCCs, which in turn acquire and manage a portfolio of qualifying SMMEs. Since its 2014 incorporation Anuva Investments Ltd (Anuva) has created or saved more than 350 jobs through the wise application of up to R235 million in shareholder capital.
The section 12J VCC investment allows individual taxpayers to invest their capital ‘with conscience’ and to participate meaningfully in job creation and economic growth. “Our section12J structure allows taxpayers to repurpose some of their tax dues to capital forming activities in the private sector,” says Hobbs.
“We focus on generating long term shareholder value by skilfully combining this capital with selected SMME growth opportunities under the guidance of our expert investment team – shareholders invest on the merits of our underlying portfolio with the section 12J tax allowance as an additional incentive for them to get involved”.
Investors should participate in section 12J VCC structures with due consideration for their personal financial and tax circumstances. They should consider the duration of the investment (SARS requires a minimum of five years for the tax allowance to vest); the costs associated with the investment; and the quality of the underlying VCC portfolio. If, for example, the underlying investment loses value over the five year period the taxpayer may not benefit fully from the upfront tax allowance.
Anuva has invested in a handful of technology-based start-ups alongside some more established manufacturing and services firms since 2015. It owns stakes in Cape Mohair (46%); Mastercare Mobile Coastal (50%) Nu Mobile Gauteng (50%) and Mastercare (69%). Cape Mohair produces a variety of mohair products with a focus on designer and medical sock manufacturing, while the two mobile companies provide smart mobile services to employees in large companies. Mastercare is a domestic services company that provides care plans to repair household electronics as well as to assess and repair insurance claims and out the box failures for the insurers and manufactures.
We believe that “these SMME businesses have phenomenal growth potential that will create wealth for our shareholders as well as deliver meaningful jobs for South Africa over the years to come”. Anuva boasts a solid track record with profit in each of the last three years. It reported R14.1 million in profit for the 2018 financial year and distributed R10.5 million to its Class-A shareholders, achieving an impressive 8% dividend yield.
“Anuva’s investment team will continue to identify and invest in SMMEs that show potential to contribute to economic and jobs growth,” concludes Hobbs. “We will provide equity capital and strategic management assistance to these firms with the aim to grow their operations and improve their productivity, with the intention to ultimately deliver remarkable multi-year returns for investors”.