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The future of Section 12J and the Sunset Clause by Grovest

Section 12J is the fastest-growing alternative asset class in South Africa, catching the attention of many individuals, family offices and institutional investors. 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 SME's and job creation. 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) - 12J Association Report This is the most cost effective job creation project that government has initiated to date.
The future of Section 12J and the Sunset Clause by GrovestIn 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 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, stated: “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 Corproate 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 Corproate Advisory, also weighed in on the affects 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”

10 things you need to know about the upcoming Sunset Clause
  • 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 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
For more information around Section 12J and the Sunset Clause contact Jeff Miller

az.oc.tsevorg@mffej

+27 83 700 0525 | +27 11 262 6433

Building 2, Pinmill Office Park,
164 Katherine Street,
Sandton, 2196

11 Feb 2021 12:43

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