By James Rothmann, CFO at Section 12J specialist management firm, Anuva
Tito Mboweni will present the government’s 2021 budget on 24 February and investors and role-players in the Section 12J sector will be waiting with bated breath to hear if the tax incentive receives a well-deserved extension.
Section 12J is only recently receiving the attention it deserves, and the cutoff, in my opinion, will be short-sighted; we will only realise the real benefits of the act in 2 or 3 years. Unfortunately, all indications are suggesting that it’s highly unlikely that Treasury will grant an extension to the 12J scheme. It is possible that we will see an extension subject to restrictive amendments, one of those being the removal of hospitality property as an approved asset class. Considering that the hospitality industry has been one of the hardest hit during the pandemic, putting a lid on funding via Section 12J will come as another blow.
We do expect reasoning with regard to the cutoff to be supported by the need to recover more income taxes, but as you will see in our previous commentary ‘Section 12J, what it’s costing the fiscus’ we drive a strong case for the incentive’s efficacy on the budget. The tax revenue ‘lost’ to the fiscus (estimated R5Billion over 11 years) thus far on 12J has been a drop in the ocean compared to the annual budget of around R1.4 Trillion.
Among the crippling economic aftermaths of the Coronavirus is the plummeting rate of tax revenue. Mboweni has his back against a wall as he scrambles to find money to stabilise the economy and fill the estimated 16% budget gap. Those in the solidarity tax camp may argue that hiking income tax for higher earners is the most feasible solution, but surely a more pragmatic approach is required.
Investors into a Section 12J fund can be confident that they are not throwing good tax money into bad policies. A Section 12J investment goes right where it is needed, creating much-needed funding to boost the SMME sector (hardest hit during lockdown). Not only are we at Anuva, through our various investments, saving existing companies, jobs and livelihoods, but we are also stimulating growth, encouraging and mentoring entrepreneurship and creating much-needed employment opportunities. Add a tax break to the amount you invest and you have yourself an opportunity to make a difference, earn an attractive return and recoup your tax via the 100% tax refund offered via SARS’s Section 12J tax incentive.
Considering the current economic climate, what with the SMME sector literally on its knees, business South Africa could do with some good news by way of extending the incentive. Unlikely, though.