Agri HourThe end of Section 12J is nearing
─── ELSABÉ RICHARD 05:00 Mon, 03 May 2021
Many farmers who sought financial assistance to help grow or start their business, as well as investors, have benefitted greatly from Section 12J over the past few years.
Dave Humphrey, Director of Impact Empowerment Ventures, says this section allows investors to invest in businesses and deduct 100% of their investment from their taxable income in the year of the investment.
See PODCAST below
What is Section 12J and what does it mean?
Humphrey: Section 12J is a National Treasury initiative that allows South African taxpayers to invest their taxes into a small business. The purpose of that is that businesses need capital. Many of them can’t get loans or capital from banks, especially those that are start-ups or early-stage smaller businesses, or even bigger businesses that need money for growth to expand their business.
In the agricultural sector, farms are businesses, after all, need to make profits and they need capital. So, this is to allow small businesses to receive money and for the investor to deduct that money from their income for the entire year.
Unfortunately, Section 12J is going to end on the 30th of June 2021.
Now that Section 12J is coming to an end, are there other similar funding initiatives like it?
Humphrey: Not that I am aware of in South Africa. There are some initiatives on the tax side, and we focus on Section 12J only. The tax act is very comprehensive in South Africa and the regulations are sometimes difficult because they change a lot – even Section 12J has changed almost every year since 2009.
But, yes, there are some initiatives [such as] crowdfunding, specifically for the agricultural sector. One of the models we use is called the Outgrower Farmer Method and certainly, it is for smaller farmers, who maybe have been subsistence farmers before, to get capital from various department of trade and industries if they are able to qualify.
There may be other opportunities, we just don’t work in that space.
So, Section 12J is coming to an end and what we are doing right now is that we are raising capital for the farms or businesses that can be used as capital and collateral for another loan. So, it is a good way of putting, what I call, a “war chest” together for a business because it is not quick money into the business, it is what we call patient capital.
From our point of view, we are very fortunate as Impact Empowerment Ventures, as we are part of the Impact Investment Africa group of companies. That group of companies is involved in other types of asset management where they raise capital even from small pension funds and different institutional investors.
But, we won’t be able to continue to raise capital for the projects after the 30th of June. We also speak to various other funding institutions, even offshore funding institutions, that are looking into partnering with good quality projects in the agricultural sector in South Africa. They don’t need the Section 12J deduction as an investor into South Africa from overseas. They just want to know that their funds are well managed to a regulated asset manager and that the projects are getting the money applied properly.
We will operate after the 30th of June as a fund manager for these types of institutions that will be investing, who want agricultural exposure – it just won’t be under the Section 12J banner.
With that being said, Impact Empowerment Ventures have recently successfully assisted the South African rabbit sector to get recapitalised.
Visit impact12j.co.za or contact Humphrey on 082 903 1153 or firstname.lastname@example.org for more information.