Investment in SME sector under threat

Sasha Planting

Treasury announced recently that tax incentives received by venture capital companies (VCCs) investing in small and medium enterprises are under review.

Concerned about possible abuse of the Section 12J tax incentive, Treasury has proposed far-reaching changes to the Income Tax Act under the Draft Taxation Laws Amendment Bill.

The proposed amendments have been met with some concern. “The Section 12J tax incentive was passed in 2009,” says Derrick Hyde, founder, and director of Jaltech, which specialises in Section 12J VCCs. “However it was not until recent years when minor legislative amendments rendered it more workable. As a result, 90% of capital raised has happened in the last two years.”

The concern is that the proposed amendment will severely hamper, if not destroy, the sector.

“National Treasury is responding to what it perceives as abuse of the incentive. I don’t think it was happening on a large scale,” says. Neill Hobbs, co-founder and director at Anuva Investments, another section 12J venture capital company. “But when people are advertising using 12J to avoid tax, or buy a holiday home, it will alert the authorities to possible abuse.”