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Medical scheme contribution tax credits capped to raise funds for NHI.

Finance Minister Malusi Gigaba has trimmed the tax credits taxpayers receive for their medical scheme contributions to raise an extra R4.2bn for National Health Insurance (NHI) without destroying the affordability of medical scheme cover.

The development highlights once again how much more cautious a line Treasury is taking than the Department of Health on the implementation of NHI. Health Minister Aaron Motsoaledi has consistently said scrapping the tax credits altogether could provide billions of rands for NHI, while Treasury has warned that they play a vital role in ensuring medical scheme cover is affordable to low-and middle-income wage earners.

In October, it published analysis showing that more than half (56%) the total credits claimed in 2014-15 went to 1.9-million taxpayers with a taxable annual income below R300,000. In total, 3-million taxpayers claimed R18.5bn in medical tax credits that year.

Treasury announced on Wednesday that it would be increasing the cap on these tax credits at below inflation rates for the next three years, to raise R4.2bn.

The cap will rise by a nominal 2%, significantly below Treasury’s forecasts for consumer price inflation, which are 5.3% for this year, 5.4% for 2019 and 5.5% for 2020. However, the adjustment is so modest it is unlikely to force anyone to drop their medical scheme cover.

The medical tax credit will increase from R303 per month to R310 per month for the first two beneficiaries and from R204 to R209 per month for the remaining beneficiaries, Treasury said in its Budget Review.

Any significant changes to the medical tax credits would need to be carefully managed, and carefully timed with the roll-out of NHI, said Treasury’s head of tax and financial sector policy Ismail Momoniat.

As the government has yet to establish an NHI fund, most of the additional money raised from the adjustments to the medical tax credits will go the NHI indirect grant, which has been restructured into a personal services component and an indirect services component. It is managed by the national Department of Health and will cover initiatives such as school health programmes, chronic medicine dispensing, and contracting with private sector doctors.

21 February 2018 - Tamar Kahn

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