Since the regime was introduced in 2009, 165 funds have registered funds in terms of the Section 12J tax dispensation — and 120 of them are currently active.

In 2019 alone, the market’s assets under management increased from R3.2-billion to more than R6.7-billion. Insiders say the sudden spike was because more wealth management firms and banks were advising their clients to make use of it.

The 2019 12J Marketplace Conference will take place on 2 August. It is a dedicated network for financial professionals and the people they serve, and it has grown in popularity and participation.

Aurik Investment Holdings plans to raise capital of between R60-million and R100-million for its 12J growth fund. CEO Pavlo Phitidis says it would benefit at least 12 small- to medium-sized businesses.

Other 12J funders that will showcase their propositions are Zimbali Capital, Infinity Anchor Fund, Anuva Investments and Kalon Ventures.

Such equity funding made available through 12J structures support many a hungry enterprise, says Phitidis.

“The confluence of established deal flow and growth funding brings the spirit and intent of S12J to fruition.”

The tax regime was introduced in 2009 to catalyse business formation and job creation. Small businesses are considered the backbone of the local economy, but historically growth has been stymied by the lack of venture capital opportunities.

Aurik’s first 12J fund, dubbed Linkmakers and launched in 2017, is expected to be fully deployed by 2020. It targets small firms that are 51% or more black-owned.

Phitidis said the fund has already deployed more than R60-million, drawn from corporates looking to score BEE points.

Industry players, however, are concerned that new limits imposed on tax rebates stipulated under Section 12J of the Income Tax Act will reduce the amount of capital that companies can raise.

The regulation, which came into effect on 21 July, restricts the amount investors can deduct from their taxable income to R2.5-million a year. Previously there was no such limitation.

Jonty Sacks, a director at Jaltech, a Section 12 advisory group, says the limitation will be a disincentive for traditional investors, who are mostly high-net-worth individuals, from holding their capital in the country, subsequently reducing the amount that venture capital companies (VCCs) can raise.

The threshold would also discourage corporations from investing in 12J funds, he says. Companies are more likely to invest at levels of up to R20-million. He estimates that corporate funding made up just 10% of the R3-billion raised by Section 12J funds over the past few weeks.

Phitidis agrees that the threshold will limit the involvement of big business.

National Treasury, however, says it will limit abuse of the system. According to its explanatory memorandum, the new threshold will apply in respect of expenditure incurred by the taxpayer on or after 21 July 2019.

Treasury introduced the VCC tax incentive in 2008, which allows an individual who invests in stipulated VCC shares to deduct 100% of the amount invested, limited to R750,000 a tax year and to R2.25-million over a lifetime.

As it stands, the dispensation won’t be available for that much longer. Only investments made before June 2021 will qualify for tax relief.

Should the sunset clause not be extended beyond June 2021, it will be the end of this growing industry as we know it. BM