Section 12J, offering a lifeline for the hospitality and tourism industry
The tourism industry, which pre-COVID represented 9.8% of South Africa’s total workforce, has been the worst-hit sector as a result of the national lockdown that was instituted after the pandemic hit our shores. The Tourism Business Council of South Africa (TBCSA) issued a report earlier this year showing that by May 2020 more than R68 billion (about US$4 billion) had been lost in tourism revenue and that as many as 600 000 job losses had been reported due to national lockdown. The closure of restaurants, B&Bs and hotels is becoming increasingly ubiquitous as the tourism and hospitality industry finds itself on its knees.
Government’s COVID-19 tax relief measures dried up almost overnight and insurers skirted business interruption claims, leaving many businesses in this sector with nowhere to turn for assistance funding. Fortunately, for those ‘in the know’, there has been an unsung hero picking up the pieces and providing not only a glimmer of hope, but also solid funding for projects to continue or for businesses to remain trading. Section 12J, government’s tax incentive introduced in 2009 to stimulate job creation, has been the reason that many a hotel employer has remained, not only able to re-open their doors and keep a workforce employed, but, more importantly, to continue with development projects that without funding would have come to a halt. Section 12J incentivises tax-paying investors by offering a 100% income tax deduction on the money invested into qualifying venture capital companies. The hospitality sector is included as a qualifying sector in which these funds may invest.
According to Neill Hobbs, CEO of Anuva Investments, of the R9 billion invested in the Section 12J sector, R2 billion has reached the hotel-keeping sector via Section 12J investments. Anuva Investments, through their partnership with the Flyt Property Investment’s Hospitality Fund, has invested R157 million into their Section 12J hospitality fund which recently facilitated the launch of hospitality group, WINK Aparthotels.
The launch of WINK’s two Cape Town properties, WINK Foreshore and WINK Eaton Square, has created jobs for an entire new team of hospitality, marketing and sales professionals, many of whom had lost their income earlier this year. Hospitality Manager Lauren Barnard says that 13 new positions have opened up in the group in the last 6 months with an estimated additional 25 vacancies expected to become available as the business continues its growth projection.
According to research from PwC, for every R1 invested into tourism, an additional R1.26 of GDP activity is generated, and for every R1million into the sector, 7 jobs are created. Hobbs emphasises that “the Section 12J tax incentive has never been more important as South Africa attempts its economic recovery.” Hobbs urged high-net-worth taxpayers to consider the 100% tax break given to investors in a Section 12J fund as a lifeline for the vitally important tourism sector.