South Africa: Tax Incentive Leads to the Evolution of a New Investment Class


Section 12J is quickly becoming an important diversification option, allowing investors to invest pre-tax funds into sectors which generally have significant upside potential. Diversification has been one of the catalysts to the growth of Section 12J, resulting in more than R3-billion being invested within the past financial year, increasing the total capital under management.

Following the conclusion of the 8 May 2019 general elections, one can't help but think of the myriad uncertainties all South Africans have regarding the future of the country.

This uncertainty spans across poor service delivery, high unemployment rates, a slipping currency and dismal economic performance, with the looming threat of junk status hanging over our heads, among others. There is, however, much optimism for South Africa's local small and medium enterprises, which are catalysts for growing the local economy, generating revenue and subsequently creating sustainable jobs that have a positive implication for the lives of South African taxpayers.

This optimism is placed in Section 12J of the Income Tax Act, which was introduced by Treasury as a tax incentive for the purposes of stimulating investment in local small and medium enterprises. The incentive was first introduced in 2009 after the success of a similar venture...

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