Earlier this week, The Association released the inaugural Section 12J Industry Report to government. The report is especially topical, with the Section 12J “sunset clause” set to come in to effect in June 2021.

key findings of the report
Since 2015, the Section 12J incentive has raised a significant amount of incremental investor capital Approximately R9.3 billion raised as at 29 February 2020 82% of this capital raised is believed to be incremental, i.e. respondents believe that approximately R7.6 billion would not otherwise have been invested in similar venture capital initiatives had it not been for Section 12J This capital will be invested in the SA economy for a minimum period of 5 years, thereby promoting onshore investment
The Section 12J legislation has effectively invested into local SMMEs An approximate R5.5 billion (57% of total incentive capital raised) has been invested into more than 360 SMMEs across the country (an average investment size of R15 million per business) 76% of the total capital invested by Section 12J into small businesses is believed to be incremental, i.e., had it not been for Section 12J, an approximate R4.2 billion would not have been invested into local SMMEs Key areas of investment include student accommodation, education, agriculture, renewable energy, hospitality & tourism and many others Respondents indicated that 25% of total industry investments have been made outside of major metropolitan areas
The Section 12J legislation will cost the fiscus significantly less than the up-front tax deductions granted The legislation has only cost the fiscus an approximate R1.3 billion (or 14% of total deductions granted) As is the case in the UK, Section 12J can become a self-sustaining incentive which may not cost the fiscus any revenue (due to the Section 12J exit tax consequences, as well as the fact that the underlying investor companies pay normal corporate taxes and VAT)
Section 12J has already created an approximate 10,500 jobs These 10,500 jobs have been created across a broad range of industries, at an average cost per job of R126,000 (in comparison to other government job creation incentives which provide for a permitted cost per job of up to R450,000) Section 12J has the potential to create a total of approximately 45,000 jobs should the legislation be given more time (based on accepted economic multipliers) Respondents indicated that 74% of industry jobs created were from previously disadvantaged race groups (63% black)
Section 12J has created a vibrant, SMME focused investment ecosystem Approximately 57% of total Section 12J capital raised has been raised from individuals, who take a vested interest and become key role players in their investments Section 12J introduces young SMMEs to experienced businesspeople, providing mentorship and guidance not previously available
The report concludes that Section 12J should be extended until at least June 2027 100% of respondents were of the view that the incentive is positively impacting the SA economy and should be extended