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Tax hikes will fund NHI scheme, Minister confirms

There are still no specific details on how the impending National Health Insurance will be paid for, but South Africans should gird their loins after the National Department of Health again confirmed that tax hikes and other tax changes are on the way to fund the scheme.

This week, in a written parliamentary Q&A, Health Minister Joe Phaahla was again asked about the funding and the rate of tax likely to be imposed on individual taxpayers.

As in the past, there was no real answer, reports Business Tech. Instead, he repeated that clause 49 of the Bill deals with the funding question – and that “possible tax amendments will be introduced through a Money Bill …as and when appropriate… subject to the ‘transitional arrangements ’provided in Section 57 of the Bill”.

What this actually means

Clause 49 outlines the funding mechanisms that also include general tax revenue as well as payroll taxes and income tax surcharges.

The “transitional arrangements” mentioned in Section 57 of the Bill refer mainly to the timelines for implementing the laws, which run from 2023 to 2028.

The first implementation phase of the NHI runs from 2023 to 2026, when the Fund will be set up and other groundwork initiated.

The second phase – which would see the “mobilisation of resources” and “the establishment and operationalisation of the Fund as a purchaser of healthcare services through a system of mandatory prepayment – runs from 2026 to 2028. This would ostensibly put the requirement for tax changes and other funding mechanisms into effect from 2026 onward.

Funding issue

Various business organisations have described the NHI as it currently stands in the Bill as being unimplementable, with not enough money, skills, or state capacity to make it a reality.

Research from FTI Consulting showed that, even with the government’s stated funding sources and conservative estimates of R200bn in additional funding being required, taxpayers would not be able to take the hit.

To raise R200bn will mean a VAT increase from 15% to 21.5%; or personal income tax rates increase by 31% across the board; or a payroll tax on those employed in the formal, non-agricultural sector of an estimated R1 565 p/m.

This would be completely unaffordable for already economically battered South Africans, the Public Servants Association (PSA) has warned, which has also urged President Cyril Ramaphosa to delay the signing of the Bill.

It described as alarming the plans to increase VAT and income tax, saying that the government should instead address fiscal inefficiencies, including fruitless expenditure and corruption.

The PSA said the current funding model lacks sustainability, and disproportionately burdens the poor, already labouring under the high cost of living, constant increases in petrol prices and high interest rates.

Salary increases had consistently lagged behind inflation rates, exacerbating the financial strain on households, it pointed out, recommending that the government should rather prioritise job creation.

It said any funds acquired through corrupt means must be recovered and redirected towards supporting the NHI, and tasked government with streamlining Cabinet and reducing unnecessary expenditure, reports


BusinessTech article – NHI tax hikes are coming (Open access) article – PSA advises Ramaphosa to delay signing NHI Bill into law (Open access)


See more from MedicalBrief archives:


Income tax hike and payroll tax proposed for NHI funding


Government dodges issue of NHI funding model – DA


No decision on taxes funding NHI, says Finance Minister




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