RUSHIL VALLABH: Despite flaws, section 12J tax incentive had a positive effect on the economy
Amendment benefited investors and also helped small businesses create jobs
Last month saw the sun set on a groundbreaking investment incentive, the section 12J amendment. It is not often one hears the words “groundbreaking” and “tax amendment” in the same sentence, but the intention of this legislation had the promise of making a real dent in the challenges of growth and job creation for small and medium-sized businesses (SMEs) in SA.
The section 12J structure was a revolutionary mechanism to catalyse investment into SMEs: investors could offset their investment into a 12J company against their taxable income. This meant investors could get up to 45% of their investment back in tax deductions. The catch was that 12J companies had to follow a set of investment criteria to ensure funds were directed towards smaller companies to drive growth of this underfunded segment of companies...