Tax credits worth R25bn to be phased out to fund NHI

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South African taxpayer’s tax credits totalling about R25bn will be phased out in the coming months as a means of funding the incoming National Health Insurance scheme.

Business Tech quotes Die Burger as saying that this is according to Dr Mark Blecher, chief director for health and social development at the National Treasury, who was addressing a Government Employees Medical Scheme (GEMS) symposium.

According to Blecher, announcements about the phasing out of the credits are expected to be made by Finance Minister Malusi Gigaba during the mid-term budget on 25 October, and in the main budget speech next year.

The report says Blecher warned that lower and middle-class earners should prepare themselves for the loss of these credits – as these are the groups that will be hit the hardest. “It is very important that people whose tax will be amended understand the benefits they receive due to these credits, and what they will be giving up to the NHI,” he said.

Government is expected to collect close to R25bn from these tax credits, which will be used to help fund South Africa’s poorest citizens under phase 2 of the incoming NHI.

Health Minister Aaron Motsoaledi had previously indicated that the priority programmes that would initially be covered by the NHI Fund include healthcare at schools, childhood cancer, women’s health (including pregnancy, cervical cancer and breast cancer), mental health services, disability and rehabilitation services, and hip, knee and cataract surgery for the elderly.

The total cost of these implementations is expected to reach R69bn over the next four years, the report says.

 

According to the SA Revenue Service’s (SARS’) official documentation on medical aid tax credit, this phasing out could equate to medical aid members forfeiting anything between R300 and over R1,000 a month depending on the number of dependents on the plan, the scheme itself, and who the main policy-holder is, says a further Business Tech report.

While the impact of this plan is relatively slight for a single medical-aid holder (R303 a month, or R3,636 a year), the effects will have a more significant impact for a family of four (R1,014 a month or R12,168 a year).

The report says it should be noted that while tax credits were the main funding proposal suggested to fund the NHI, Health Minister Aaron Motsoaledi has indicated that other mandatory charges are also likely to be implemented. These additional charges and the final implementation date of the NHI have still not been confirmed.

The report says a Medical Scheme Fees Tax Credit is a rebate which reduces the normal tax a person pays. This rebate is non-refundable and any portion that is not allowed in the current year can’t be carried over to the next year of assessment, according to SARS.

The MTC effectively replaced part of the tax deduction that was specifically allowed for medical scheme contributions, and applies to fees paid by a taxpayer to a registered medical scheme (or similar registered scheme outside South Africa) for that taxpayer and his or her “dependents” (as defined in the Medical Schemes Act).

“This MTC seeks to bring about greater fairness and help achieve greater equality in the treatment of medical expenses across all income groups,” SARS said.

The following fixed monthly amounts are based on the 2016/2017 and 2017/2018 years of assessment. The amounts may vary depending on the number of months in the tax year that a taxpayer and dependents are members of a medical scheme fund.

 

Tax credit per month 2017 2018
For the taxpayer who paid the medical scheme contributions R303 R286
For the first dependant R303 R286
For each additional dependant (s) R204 R192

 

Business Tech report
Business Tech report


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