Finance Minister Tito Mboweni
- Government has canned its scheme that gave tax breaks for venture capital investments.
- These so-called Section 12J investments were not creating enough jobs, Treasury said.
- Instead, these investments brought significant tax deductions to wealthy taxpayers.
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One of the only shocks in South Africa’s 2021 national Budget was the unexpected abolishment of so-called Section 12J tax breaks.
Section 12J of the Income Tax Act affords South Africans a tax rebate if their investments are made through an approved venture-capital company.
The idea was to encourage investments in small businesses and riskier ventures that can help to create jobs and economic growth.
The scheme was introduced in 2008, and was set to expire on 30 June 2021. Experts expected it would be extended.
Instead, Treasury canned it.
In its Budget 2021 statement, Treasury said it had not “sufficiently” achieved its objectives of developing small business, generating economic activity, and creating jobs.
“Instead, it provided a significant tax deduction to wealthy taxpayers.”
Far from investing in small businesses and riskier ventures, Treasury found that the majority of the S12J investments were “low risk”, and offered guaranteed returns “that would have attracted funding without the venture”.
Treasury found that more than R11 billion was invested in some 360 S12J venture companies, but only 37% of these companies added new jobs after receiving funding. Many of the companies offered property investments.
It also noted that 12J industry body’s survey was “more optimistic than the actual responses” when it came to job creation.
While the Section 12j tax incentives are coming to an end, Treasury has extended tax breaks for property developers of buildings in city centres. These had been due to end in March, but have been extended with another two years.
Treasury is currently reviewing the tax incentives for research and development.