THE Board of Healthcare Funders (BHF) has raised concerns
about the state's tax credits on medical aid schemes, saying these will fail
the government in its aim to benefit low-income earners.
"We are concerned that... tax credits will fail to
(positively) affect low-income employees if the credit can only be used to
offset a tax liability in the year of assessment," said Rajesh Patel, head
of benefit and risk at BHF.
The BHF is a representative body for medical schemes
throughout southern Africa.
"Low-income earners need the money upfront. And these
credits do not translate into stepping up into a higher benefit. The state
decided to ignore all our advice. We are all disappointed."
The credit system was introduced on March 1 this year, at a
rate of R230 a month for the first two beneficiaries and R154 for every further
Up to March this year, taxpayers qualified for a set monthly
deduction on their taxable income, based on their family composition. It was
contended that these monthly deductions were more rewarding to wealthier
As an example, if you pay tax at a rate of 40%, your medical
tax benefit is 40% of the set deduction (R720 x 40% = R288), whereas a taxpayer
with a tax rate of 18% only receives (R720 x 18% = R129).
According to Johan Lombard, actuarial specialist at Momentum
Health, the new tax credit system ensures the same monetary benefit to everyone
in the form of tax credits.
"This will operate in a similar fashion to the tax
rebates afforded to individuals, in that it reduces the tax payable by an
individual (and not the taxable income)," Lombard said.
"The tax credit amounts have been set to closely
replicate the level of benefit a taxpayer in the 30% tax bracket was receiving
within the 2011/2012 tax deduction system."
Therefore, according to Lombard, individuals in lower tax
brackets will receive slightly more than before and individuals in higher tax
brackets slightly less in monetary terms.
In addition, the National Treasury introduced tax credits
for medical aid contributions as a first taxation step towards the introduction
of the national health insurance (NHI).
These tax credits have been described as a first step in
preparing for a proper base for the later introduction of the NHI.
"The stated rationale that the proposed tax reform is
required to harmonise the tax system with the proposed NHI is, in our view,
premature and potentially confusing," Patel told Fin24.
"The NHI policy document (green paper) which was
released on August 12 2011 does not point to any form of preferential tax
treatment for medical scheme members.
"On the contrary, the ultimate objective of the NHI as
outlined in the green paper implies that medical schemes (and hence, related
tax initiatives) are likely to function outside and independently of the
In his budget speech earlier this year, Finance Minister
Pravin Gordhan said the state would need an extra R6bn for the NHI in 2014/15.
He said this could be funded through an increase in VAT, a payroll tax on
employers or a surcharge on the taxable income of individuals.