By: Westbrooke Alternative Asset Management
There are now more than 100 registered Section 12J (S12J) companies in South Africa and it is estimated that the market has raised more than R3.6 billion in investments. S12J was instituted in 2009 with a 12 year sunset clause” set to end in June 2021.
Westbrooke Alternative Asset Management, SA’s largest S12J asset manager which looks over half of the capital invested in S12J funds today, has spearheaded the formation of an industry body to prove the viability of extending the incentive past June 2021. The body, named The Section 12J Association of South Africa (S12J Association) aims to compile the relevant information that National Treasury can use to assist in understanding the success of the incentive and motivating to extend the legislation post the sunset clause.
S12J Association will investigate the number of Section 12J investments made, how many jobs have been created and sustained, how much S12J capital has been deployed, what sectors of the economy and geographic areas are benefiting, and economic activity around S12J, amongst others. The body will track successes as well as areas which can be improved for the benefit of the industry and investors.
Westbrooke’s Dino Zuccollo, a founder member of the Section 12J Association of South Africa explains, “S12J had a much delayed start. It took from 2009 to 2015 for the tax legislation to be amended to be more attractive to investors. For this reason, we will only have seven years of data to assess whether S12J has met its objectives. It’s important that we can prove the impact that S12J has had in South Africa to justify its extension beyond the sunset clause.”
Section 12J was introduced by the South African Revenue Services under Section 12J of the Income Tax Act in 2009 as an investment tax incentive. The intention was to boost the South African economy by encouraging investment into a range of private companies which meet defined criteria.
The Section 12J tax incentive gives investors the ability to write off 100% of their investment against their taxable income in the year they invest. Therefore investors can benefit from up to 45% immediate tax relief. This reduces the cost of the investment, which provides downside protection and enhances overall returns.
Concludes Zuccollo, “All industry participants are invited to become part of The S12J Association. Since it was introduced, it is clear that S12J has had a positive impact on South Africa and the economy. The S12J Association will prove it.”