This is how medical tax credits will be affected if NHI starts

All taxpayers who are members of a medical scheme will be affected if NHI is somehow brought to life. Currently, tax payers who are members of a medical scheme can claim a medical tax credit or rebate of R347 per month for the main member and R234 per month for every additional member, but the rebate will likely fall away when National Health Insurance (MHI) is introduced.

And this is not the only tax implication for taxpayers.  According to a report by FTI Consulting on the macro-economic implications of NHI, tax payers will have to fork out a significant amount of money every month to fund universal health care for all.

During a department of health presentation in December 2022, the department said it requires an extra R200 billion per year to fund the NHI, but FTI warns that this could be as much as R600 billion per year.

FTI says since there are no details available about the NHI benefit package, the cost of the NHI, or how these funds will be raised, it based its calculations on R200 billion as an illustrative value.

Nevertheless, to raise R200 billion in the current fiscally constrained environment and assuming that the number of taxpayers and their spending remain constant, FTI says it will require that VAT increases from 15% to 21.5%, personal income tax rates increase by 31% across the board, or formally employed tax payers pay a payroll tax of an estimated R1 565 per month.

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Minister of finance will have to introduce a Money Bill

However, Craig Comrie, chairperson of the Health Funders Association (HFA), says changes to taxation can only be introduced by the minister of finance in a money bill. “Medical schemes and their members should be aware that the NHI Bill has no power to implement tax changes.”

He adds that if it becomes necessary, the HFA will strongly oppose any proposed legislation to this effect through all available avenues, not only to safeguard the rights of medical scheme members but also because it does not make economic sense for the country and its people.

“Removal of the tax credits would effectively increase medical scheme members’ taxes and stifle what little disposable income remains to stimulate our economy. Medical scheme members are already contributing substantially to the public health system but not using it, and therefore the tax credits provide partial compensation by reducing the tax they pay, depending on how many dependents they have.”

Comrie says the public health budget is more than the tax credit amount, at around R5 000 per person per year. “Therefore, medical scheme members receive a benefit that is much lower than the benefit non-medical scheme members currently receive.

“In addition, it is essential to highlight that more than half of people who belong to medical schemes have a monthly household income below R30 000 and the tax credit is a key factor in their ability to afford cover.”

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Monthly loss of R1 220 per month for family of four if credits go

He points out that for a family of four, removing medical scheme tax credits would effectively result in a monthly loss of R1 220 in household income, or R14 640 per year. “For some families, this would make private healthcare cover unaffordable, thereby transferring at least 400 000 to 700 000 more people onto an already overburdened public health system.”

National Treasury restructured the rebates in 2012 to be more beneficial to lower-income earners since the tax credit represents a higher proportion of their tax payable and has helped to make medical scheme membership accessible to more people.

“The approximately R27 billion rebate in the form of tax credits to medical scheme members pales in comparison to the colossal projected costs of the NHI, amounting to a mere 5% to 8% of the estimated total.”

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No nice words about NHI from economic analyst

Prof. Bonke Dumisa, an independent economic analyst, does not mince his words when asked about the tax implications of the NHI. “The whole NHI as it stands is an ideological stubbornness aimed at showing the ANC ruling political party as “politically relevant.

“Commonsense dictates that medical tax rebates will cease to exist if an NHI-related tax is imposed. In fact, politicians have been eyeing those medical aid tax rebates when considering the viability of the NHI.”

However, he says, they forget that less than 30% of the total population is on medical aid; therefore, hoping that you will use the money that less than 30% of the population contributes for the whole population does not make sense.

“Some of the people who are currently on medical aid may not necessarily be taxable in terms of their income bracket. Government is failing to manage the current public sector facilities that fall under its control. They now want to destroy the private sector health systems that actually work.”

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With NHI everyone who pays tax will pay, not only medical scheme members

Jürgen Eckmann, wealth manager at Consult by Momentum, foresees that contributions to NHI will be forced blanket-wise over the income-earning population. “I hope it will be more tax-beneficial if you are forced to contribute. If you did not contribute to medical care before, you will now be forced to.”

Frank Blackmore, lead economist at KPMG, says the central characteristic and criticism of the NHI Bill as it stands is a lack of detail around its financing and financial aspects, including medical aid credits. 

“The idea is obviously to allow everybody access to a universal health care system that is funded by red-tax revenues, and in that case, it would not require a tax rebate on medical expenditure. However, it will take many years for us to get to the point where this becomes an issue, and I think there has to be a lot of debate. As the NHI will be implemented incrementally, a lot of these practicalities will potentially be worked out.”

Marcus Botha, director for tax at BDO South Africa, expects that medical credits will be removed so that people with medical aid will no longer be able to claim a tax credit against their medical expenses.

Prof. David Warneke, head of tax technical at BDO South Africa, says he fails to see meaningful funding allocations for the NHI being announced in tomorrow’s budget. “There is the possibility that the medical tax credit could be curtailed to help fund the NHI, but I doubt this will be announced tomorrow. The funding requirement for a full rollout will be staggering.”

ALSO READ: NHI hopelessly unworkable’: BLSA says health sector getting worse with no recovery in sight

Will the minister of finance scrap medical tax credits now?

Joubert Botha, executive director and head of tax and legal in Southern Africa at KPMG, says the minister of finance could consider scrapping or reducing both medical scheme fees and additional medical expenses tax credits in an effort to fund or partially fund the NHI. This would mean a higher personal tax burden for an already overburdened taxpayer.”

Herman van Papendorp, head of investment research and asset allocation at Momentum Investments, says there is a chance that medical tax credits could be adjusted as a potential mechanism to fund the NHI.

“The SA Institute of Taxation estimates that this works out to R4 400 per year for an individual taxpayer and up to R14 000 per year for a family of four, which is received in the form of a nonrefundable rebate that reduces total tax paid.”

He says that while it is unlikely that the VAT rate would be hiked in an election year, higher VAT rates may be used in the future to fund more permanent streams of expenditure to provide funding for the implementation of the NHI or to cater for a more permanent extension of the Social Relief of Distress (SRD) grant.