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BHF concerned by tax credit changes

Monday, 23 April 2012   (0 Comments)
Posted by: SAIT Technical
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By Mzwandile Jacks (Fin24)

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 beneficiary.

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 taxpayers.

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 NHI.”

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.

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