“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,” according to James Rothmann of Anuva Investments.
“Section 12J is only recently receiving the attention it deserves, and the cut off, 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. “
Rothman does expect reasoning with regard to the cut off to be supported by the need to recover more income taxes, but drives a strong case for the incentive’s efficacy on the budget. “The tax revenue ‘lost’ to the fiscus (an estimated R5 Billion over 11 years) thus far on 12J has been a drop in the ocean compared to the annual budget of around R1.4 Trillion.”
According to Rothman, Mboweni has his back against the 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. “
Rothman advises that investors in 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). 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,” Rothman concludes.
Also read: Section 12J tax incentive
