Tax

Though the fight over medicine prices has gone to the highest court in the land, scant attention has focused on how much tax South Africans pay for their medicines. At 14% VAT, which earns government R1,4bn/year on prescription drugs alone, tax on medicines in a developing country such as SA could be reduced.

Tobacco excise tax increases in the budget seem to be as inevitable as night following day.

A priority over the decade ahead will be to ensure that a caring and competently managed health service is available in every community, Finance minister Trevor Manuel told Parliament during his presentation of the 2005 budget.

The head of the trauma unit at Cape Town's Red Cross Children's Hospital and director of the Child Accident Prevention Foundation Dr Sebastian van As, director of the Medical Research Council's alcohol and drug abuse research group Dr Charles Parry, and director for social services in the department of finance Dr Mark Blecher have called on government to set up an alcohol injury fund, bankrolled by taxes on booze, for victims of alcohol-related injury. The fund could also be used for equipment for beleaguered trauma units, and to finance substance abuse treatment centres(South African Medical Journal - November 2003, Vol. 93 No. 11) However if (South African) government programmes to address this serious public health programme continue to lag behind, such calls for dedicated financing will become increasingly loud. The time has come for stronger government action on alcohol. They say that in stark contrast to the image liquor industry advertising portrays, South Africa suffers particularly heavily from negative consequences of alcohol use. For example in 1999, 67 percent of patients at trauma units in a Port Elizabeth hospital had breath alcohol concentrations of 0.05g per 100ml or more. Also a national study published in 2002 showed that 52 percent of people dying in transport-related accidents had elevated blood alcohol levels. They say levels of excise taxes on alcohol are approaching international levels.Our main concern, however, is that the level of social costs in South Africa, given extremely high levels of alcohol-related violent trauma and accidents, far exceeds that of most other countries.This suggests that our excise taxes need to be higher to achieve the correct balance between benefits and costs. They say increased taxes should be specifically allocated for prevention and treatment of problems caused by the misuse of alcohol. These could include counter-alcohol advertisements, alternatives liquor-industry funded sports sponsorships, and community-based prevention programmes. The fund could also compensate victims where the perpetrator had been under the influence of alcohol, by paying for health costs and other damages. This would also be in accordance with the point made in the draft national liquor policy that we should move towards a 'polluter pays' policy, Source: Sapa 10 November 2003).

Zero-rating medicines would result in an annual revenue loss of about R500m and was not being considered by government, Finance Minister Trevor Manuel said yesterday. Exempting certain medical supplies could complicate the administrative burden of the SARS (SA Revenue Service) and the compliance burden of vendors significantly, Manuel said in a written reply to a parliamentary question by Democratic Alliance health spokesman Mike Ellis. The present policy stance of taxing medicines at the standard VAT rate underpins both equity and administrative considerations, thereby furthering the integrity of the VAT system. Zero-rating private medical expenditure, including medicines, would primarily be to the advantage of the rich at the expense of the fiscus and the less well off. The majority of South Africans make use of public health services. Such services are provided at very reduced rates in order to make it accessible to the poorest of the poor. In addition, medical services and medicines obtained via the public health sector, including medicines for the treatment of AIDS-related diseases, are already exempted from VAT. Manuel said that other initiatives such as the recent introduction of the Medicines Control Act would go a long way to help reduce the overall cost of medicines in SA. He conceded that the SA VAT regime was moderately regressive, but said the income tax system and the pattern of government expenditure which was slanted towards the poor compensated for this. Manuel further noted that middle- and high-income households derived significant relief from the fact that specified contributions to medical aid schemes could be deducted for income tax purposes. Individuals older than 65 could deduct all their medical expenses. The bottom 20% of households did not benefit from this concession as they fell below the minimum income tax threshold. (Source: Business Day, 3 July 2001)

The government could put an extra R300 million into its coffers if tax levels on the retail price of a packet of cigarettes were raised to 50 percent.