The future of Section 12J and the Sunset Clause

Section 12J is the fastest-growing alternative asset class in South Africa, catching the attention of many individuals, family offices, and institutional investors.

Ten things you need to know about the upcoming Sunset Clause

Section 12J not only offers attractive returns to investors but is structured to make a positive and significant impact on the economy by providing capital to both SMEs and job creation. 

According to the 12J Association Report, the Section 12J asset class has created an approximate 10 500 (and has the potential to create an approximate 45,000 jobs based on the quantum of capital raised). 

This is the most cost-effective job creation project that the government has initiated to date.

In September 2020, Grovest held their annual 12J Indaba and themed it, Beyond The Sunset, leading the conversations that needed to be had at a critical time.

Each guest presenter shared their sentiment towards the upcoming decision that the treasury needed to make, all were in favour of the 12J legislation being extended for very good reason.

Mansoor Parker, Tax Executive at ENS Africa comments on Section 12J. 

 “It has to be recognised the fact that we have not had the 12-year incentive – it’s only been 6 years and SMME’s need the additional time to grow”

Jeff Miller, CEO, and founder of Grovest Corporate Advisory shares his opinion on the matter. 

“I am cautiously optimistic that the Sunset Clause will be extended. The economic position of South Africa as a whole prior to the COVID 19 pandemic was very fragile, and now as a result of the pandemic is balancing on a knife’s edge. I would think that treasury would do everything and anything to facilitate and promote all assistance it can get to from the private sector to invest in SMME’s. Job creation and retention is paramount for our country at this time. Notwithstanding The VCC asset class is creating legitimate, transparent, and highly legislated businesses that are fully tax compliant which flows tax payable back to the fiscus. It would really be a pity if the this growing and successful asset class was shut down, as the short, medium and long term benefits certainly outweigh the minimal tax leakage that treasury may feel in the short term. The jury is out”

Melanie De Nysschen, Non-Executive Director of Grovest Corporate Advisory, also weighed in on the effects of Covid-19. 

“Covid-19 has affected the poorest of the poor worst and we can only solve that with employment opportunities which is what Section 12J provides”

Ten things you need to know about the upcoming Sunset Clause

• The Sunset clause is 30 June 2021 as stipulated in the Income Tax Act
• 12J Association of South Africa is lobbying aggressively for extension 
• We will know the outcome in February 2021 – Minister of Finance Budget Speech
• If not extended there will be only two more opportunities to invest in a sec 12J Feb 2021 Tax Year and prior to June 2021 for the Feb 2022 Tax Year 
• If not extended – It will have no effect on existing investors into a 12J
• No new Section 12J VCC’s will be registered after June 2021
• Tax payers will not be able to avail themselves of the 12J tax benefit after Feb 2022 Tax year 
• Existing 12 VCC’s may continue to invest there undeployed into Qualifying Companies post the sunset clause
• An exciting new asset class that has flourished over the last few years will die a natural death.
• In all likelihood capital that would have been invested in Sec12J VCC, will find its way offshore 

This article was written by Jeff Miller, CEO, and founder of Grovest Corporate Advisory. 

Featured image: Cytonn Photography via Unsplash