National Health Insurance means a greater tax burden

Mail and Guardian writes that South African citizens will have to endure being taxed more to fund the National Health Insurance signed into law earlier this month. President Cyril Ramaphosa signed the bill on 15 May, a couple of weeks before the 29 May general elections. The president said the money would come from the tax base, and this suggests that funding will either be raised from personal income tax or VAT. The tax implications for employers and employees in the short to medium term are going to be an increase in payroll taxes and surcharges, Jurgen Eckmann, a wealth manager at Consult by Momentum, told the Mail & Guardian. Payroll tax comprises unemployment insurance (UIF) and compensation funds.

The department of health has proposed a 2% surcharge on income tax and a 2% increase in payroll taxes. “The removal of medical aid tax credits is where we are going to see the immediate tax implications before we get a better idea of what it’s going to look like,” Eckmann said. “It will almost look like a triple tax and what that means is that individuals will continue with their payas-you-earn taxes plus there is going to be the NHI 2% and plus they will pay for medical aid.” According to accounting and tax firm Latita Africa, a South African earning an average salary of R26 000 a month would have to pay an additional R1040 monthly to fund the NHI. This is because of the 2% surcharge and the removal of the medical aid tax credit, which is R364 a month.

Those who want to, will be able to maintain their private medical aids, but with the scrapping of medical tax credits they will not be compensated for it. Medical tax credits are regulated by the Income Tax Act, where taxpayers are given relief for paying medical aid and thereby contributing to the revenue which provides for the public health budget. The NHI will pay for people to see a general health practitioner, but should they require additional cover that is not within the ambit of the NHI — and to see specialists (without a referral) — they would still need additional medical aid cover, Eckmann explained. In essence, the broad scope of the NHI, incorporating what currently falls under private healthcare, will mean more pressure on the already overburdened public health budget, said Zeta King, an accountant and tax consultant at Latita Africa.

“This is frustrating because the public healthcare budget is used for the upkeep of public healthcare. Now, instead of solving that problem, we are extending the scope to private healthcare, which will need to be met with a bigger budget, leaving us with the same problem,” King said. Funding the NHI will require an estimated R200 billion. According to health services group Discovery, if VAT were used to secure the amount, it would have to be increased from 15% to 21.5%. If personal income tax is used, taxes would need to be increased by 31%. Eckmann said that the R200 billion a year needed to fund the NHI is a conservative estimate and that the actual figure could go as high as R1 trillion per annum.

He said there would be an increase of R1 565 per month for payroll tax in formal sectors: “This would be an increase for everyone, from your lowest income earners to the highest income earners, which we know is not equitable. The numbers are huge and it’s daunting. It does feel like an electioneering tool from the ruling party.” If the NHI is funded through personal tax, that would cut the buying power of individuals, while businesses would be unable to retain their clientele, King said. “This bill affects the business functionality as a whole, especially if you are a small business that does not operate on huge tenders and contracts,” King said. “Can their target market afford them now?”

Although the NHI is still a fairly long way from becoming a reality, funding needs to start before it can be implemented. “It may come into play in 2046 but collection needs to start now for that to happen. We might see some of these tax increases coming in sooner,” King said. This is not ideal in a country with a relatively high interest rate environment and unemployment at all-time highs, Eckmann said. “GDP has been diminishing over the last few years and it shows that the economy is struggling,” he said. “The citizens are the ones suffering the most — how do you tell everyone in South Africa that they have to pay more taxes? It’s a conundrum.”

by Anathi Madubela

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