Photo by: Duane Daws
Two new proposed changes to South Africa’s Income Tax Act, coming into effect in April 2015, would significantly enhance the attractiveness of the tax incentives available to venture capital investors and stimulate greater levels of investment into small and medium-sized businesses.
The amendment of Section 12J, which would see the investee asset threshold lifted and a permanent investment deduction implemented, made venture capital more appealing as an investment asset class and would boost small business development and job creation, the Southern African Venture Capital & Private Equity Association said.
The total asset limit for qualifying investee companies had been increased to R50-million from a maximum book value of R20-million, which was deemed too low and uneconomical for sufficient take-up by fund managers.
Independent venture capital firm Broadreach Capital cofounder Rick Basson believed that many established and growing small and medium-sized enterprises in the education, franchising, telecommunications and renewable-energy industries would benefit.
Further, the amendment would see the South African Revenue Service allowing the investment deduction available to an investor subscribing for shares in a venture capital company (VCC) to be permanent, as long as that investment was held for a five-year minimum period.
“At present, this deduction is immediate and for the full amount of the investment made; however, it is recouped and becomes taxable if the investor sells the VCC shares at any time,” he explained.
Venture capital company Grovest nonexecutive director Jeff Miller believed the permanent deduction would attract a “large flow of investment”, as individuals and trusts with high taxable income would want to take advantage of this new tax-efficient asset class.
Research initiative Simodisa’s Keet van Zyl said he was optimistic of further amendments boosting the South African venture capital industry.
“The amendments to the VCC regime are welcome; our view is that additional steps are required to ensure that this tax structure is employed enthusiastically – and is truly effective,” he commented.