The government moved a step closer to introducing equitable access to health care for all citizens on Friday. The National Treasury published a proposal to convert medical deductions and qualifying out-of-pocket health expenses to medical tax credits. This will see more than R15 billion distributed equally among medical aid members regardless of income bracket.
Medical tax credits reduce a tax liability, whereas deductions cut a taxpayer’s taxable income. The Treasury said the underlying principle behind the proposed policy shift was “equity in the tax treatment of medical expenditure, irrespective of the tax bracket into which taxpayers fall”.
“Lower income taxpayers will therefore gain from such a change, whereas higher income earners will benefit less than at present. In this respect, the proposal also facilitates the longer-term goal of universal national health insurance (NHI).” the Treasury added.
Through the NHI, which will be phased in from next year, the state wants every citizen to have some form of health insurance, reducing the burden on its facilities and resources.
At present, taxpayers under the age of 65 who belong to a medical aid scheme are allowed, as a deduction from income, up to R720 each month for the taxpayer and first dependant and R440 for each additional dependant. The capped allowable annual deduction for a family of four is R27 840.
Qualifying out of pocket medical expenditure, plus medical scheme contributions in excess of the caps, can be claimed as a deduction to the extent that the aggregate exceeds 7.5 percent of taxable income. In the case of those who are 65 and older, and taxpayers with a disability or taxpayers with a spouse or a child with a disability, medical scheme contributions and qualifying medical expenses can be fully deducted from taxable income.
Now the government wants a medical scheme contribution credit to be set at a fixed amount of R216 each a month (as a start) for the taxpayer and first dependant and R144 for each additional dependant.
A supplementary medical scheme contribution credit of R216 a month is proposed for members or dependants aged 65 and above and members and dependants with a disability.
Margaret Hulme, the head of health-care consulting at Omac, said when applying the current tax tables, those earning R12 500 a month could score about R3 629 while those earning a monthly income of R53 333 would see their tax liability rise by about R2 496.
Cobus Venter, a director at Econex, said this should see some tax benefit flow through to lower income earners, with higher income earners effectively paying more tax.
“The current proposal does seem to indicate that the tax relief for private sector medical cover will be phased out in time, in line with government’s objective of introducing NHI. While the current proposal does not provide clarity on how this will impact the taxpayer further, the current amount for the tax credit of R216 a month is expected to increase by inflation annually. It is possible that this might become one of the NHI-related contributions over time,” Venter said.
Sandile Hlophe, the director of health at KPMG, said: “This is a clever mechanism of increasing the tax collected by reducing the amount of deductible tax expenditure for medical expenses. Hopefully additional tax collected will be allocated to health-care funding through the NHI. This will be achieved without increasing the tax rate.”
Hulme added: “The discussion document states that ‘favourable tax treatment of medical scheme contributions provides a convenient way of encouraging medical scheme membership’. Whether this tax change will encourage a significant number of non-members to join medical schemes remains to be seen, but it is a step in the right direction. At least, it may assist lower-income members to afford to remain on their schemes.”
Comments on proposals to convert medical deductions to tax credits must be in by July 22 and those relating to out-of-pocket expenses by October 31. - Business Report