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Was the Section 12J incentive pulled too quickly?
WORDS ON WEALTH:
Almost 12 years ago, in July 2009, the government implemented an initiative it hoped would stimulate small-business development, boost the economy and create employment. Investors, comprising wealthy individuals, companies and trusts, would receive generous tax break for investing in venture capital companies (VCCs). The VCCs, in turn, would use the money to fund qualifying young businesses with high growth potential.
These investment schemes came to be known as Section 12J schemes, after the section of the Income Tax Act that provided for the tax break.
The deal was that you could deduct the entire investment from your taxable income, provided you remained invested for five years. This was a very generous incentive, particularly for individuals in the top marginal tax bracket of 45%. A man earning R2 million a year could, by investing R500 000, reduce his tax bill by R225 000.
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The 2021/22 national budget reminds me a bit of that old Doors blues song 'been down so long it looks like up to me'; a kind of meta take on the perspective from which you view things. The budget is a huge improvement on what we were expecting in September last year, so in that sense, its a rel.
In the 2021 Budget Review tabled with finance minister, Tito Mboweni s budget speech, Treasury announced that Section 12J of the Income Tax Act will not be extended past its sunset date of 30 June 2021. Parliament is now faced with the decision whether to accept Treasury s policy and not extend Section 12J, or take an alternative course of action.
Dino Zuccollo is the chair of the 12J AssociationOne of Treasury’s primary objections to Section 12J is that the majority of investments supported by the incentive are in what it believes to be “low-risk” or “guaranteed-return ventures” that would have been able to attract funding even without the incentive. This objection seems to relate primarily to property-backed businesses like hotels (whose operations are backed by real estate assets) and asset rental businesses (where risk tends to be mitigated through astute corporate structuring). Since Treasury perceives these businesses as less risky, the view is that they already have