Sunset clause means curtains for section 12J projects boom
It is in the interests of all for the Treasury to extend rather than chop the tax facility
Driving along Gauteng’s highways is almost a pleasure nowadays, with far fewer vehicles on the roads. Good news? No, it’s bad. We don’t have Eskom load-shedding daily. Good news? Well, not entirely.
Quieter roads and muted demand for electricity are symptoms of an economy in deep trouble, as were the latest unemployment numbers, as are the GDP forecasts ...
The economy was in trouble before Covid-19 struck. Now it is in intensive care. No wonder finance minister Tito Mboweni opens up the odd can of pilchards to bring himself comfort and a sense of normality.
But now he has a near-impossible task. Spending demands have soared due to the Covid-19 crisis, not to mention the continued squeals for help from the parastatals. Meanwhile, due to negative growth in the battered economy tax receipts are down.
With less cash coming in and more cash needing to go out, Mboweni is understandably calling on all his cabinet colleagues to tighten their departmental belts, to slash spending where possible.
There are dangers in this, the greatest being the threat to those programmes, incentives and other support measures underpinning job creation, helping to reverse the decline of this country’s industrial base and assisting our export drive.
The industrial motor of the economy needs fuel. Starve it, and the crisis will just get deeper. Even ratings agencies should understand this. By all means, downgrade ministerial cars and force them to buy local. Slash officials’ travel allowances and be even tougher on those who divert scarce funds from deserving recipients to their own pockets.
Is it not a national disgrace that as this country was battling to cope with a deadly pandemic, the gravy train kept rolling on, with dodgy tenders flying around on what appears to have been a significant scale?
We have more than two dozen new ventures being spawned against an economy ravaged by widespread business closures
Now, with Mboweni turning from his can opener to his butcher’s knife, spending is being cut on research & development, industrial incentives and other job-creating measures. Prove they work or he will blast them into smithereens.
My own recent experience is an eye-opener to the potential for effective state support, which needs special, favourable treatment. Section 12J of the Income Tax Act allows investors to write off against their tax liability the money they plough into an eligible project. We are experiencing boom conditions in this space, against a backdrop of economic depression.
I help to raise funds for a wide array of these projects: student housing, rabbit abattoirs, cannabis production. The challenge is not in finding worthy new ventures, but in coping with the demand. All of these 12J projects are creating jobs, while the state pays nothing out. Its support comes from taxes forfeited. A low-pain way of securing big gain.
We have more than two dozen new ventures being spawned against an economy ravaged by widespread business closures. But there is a sunset clause in 12J, which means that from some time in 2021 the benefit will expire. It must surely be in the interests of the government, companies and taxpayers for this facility to be extended, not chopped by the butcher from the Treasury.
So many businesses have gone to the wall due to the pandemic and lockdown that the major focus must be on continued support for emerging businesses, and the vital jobs they provide. We don’t need a sunset clause. We need a new dawn. The benefits cannot be disputed. There should be more activity, not less.
We hear no end of reports of discussions in the Nedlac consultative forum, and see many a committee, commission, think-tank and a team of advisers being appointed. That is good, necessary and wise. However, while planning for the future we must not allow existing support measures to be further eroded. More funds, not fewer, are needed for the black industrialists programme, for the other sector-specific incentive support, for R&D, for greening the economy.
By all means, come up with new ideas, but let us not rashly empty the bathtub and sacrifice so many of the infant businesses that are being developed with 12J backing. My own passion is impact investment, which involves the selection and support of projects that not only provide a return to investors but tick several other important boxes. They make an impact in real, important areas. They support jobs, rural development, reskilling, the environment and many other equally crucial goals.
In achieving this, 12J plays a central role. This is not a contention unearthed from a dusty economics textbook, it’s a reality I have witnessed. It works. So next time the finance minister sharpens his knife and starts trimming the fat from government spending — and there is no shortage of this — there are parts of the budget that must be shielded from maximum butchery.
If we fail to nurture small businesses there will be fewer large businesses in future. And if profit is the sole criterion governing investments, our wider society will suffer.
Pilchards are delicious and important, but jobs and growing the wider economy are even more vital.
• Hart is executive chair of Impact Investment Management.
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