National Treasury will seek input from the Davis Tax Committee on the feasibility of proposals to adjust the medical tax credit to fund its National Health Insurance (NHI), it said in its Medium-Term Budget Policy Statement (MTBPS) on Wednesday.
This follows after the 2017 Budget Speech said it was considering the reduction of the subsidy as part of the financing framework for the NHI.
Research conducted by Econex suggests that roughly 1.9 million people (more than 20% of medical scheme beneficiaries) were at risk of losing their private medical scheme membership if tax credits were removed.
National Treasury’s own data suggest that the programme is “well-targeted to lower and middle-income taxpayers” (see graphic below).
Treasury said it was considering changes to the design, targeting and value of the medical tax credit as part of the policy development process for the 2018 Budget.
The medical aid tax deduction was changed to a credit in 2012.
“In 2014/15, three million taxpayers claimed the credit on behalf of eight million medical scheme members, resulting in a tax expenditure of R18.5 billion. The incidence of these credits is spread across the income distribution: 56% of the total credits claimed accrued to 1.9 million taxpayers who had a taxable income of less than R300 000. This includes many workers who belong to medical aid schemes,” Treasury said on Wednesday.
Treasury confirmed that it was working with the Department of Health on proposals to expand NHI services in “a progressive and affordable manner”.
“Legislation is being drafted to establish the legal framework for a NHI Fund. Government is considering options to establish an interim fund structure to support a limited set of priority interventions, and operate in line with current legislation.”
It warned that additional tax proposals had to be carefully considered due to the overall pressure on the fiscus.
To read finance minister Malusi Gigaba’s full medium-term budget speech, click here.