NHI will re­sult in ad­di­tional tax rev­enue

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - BILLY JOU­BERT

THE sub­ject of the Na­tional Health In­sur­ance (NHI) scheme re­cently reared its head again at the time of last year’s Medium Term Bud­get State­ment. The money in­volved is, at this plan­ning stage, in­signif­i­cant — just un­der R21m. It also seems clear that the NHI will be phased in over a lengthy pe­riod (14 years). The first phase will fo­cus on pri­mary health­care, health pro­mo­tion and pre­ven­ta­tive care.

How­ever, costs are set to es­ca­late rapidly. The Fi­nance Min­is­ter also in­di­cated re­cently that next year’s bud­get might have an ini­tial al­lo­ca­tion of R500m for 10 pi­lot projects. It has been es­ti­mated that the ini­tial phase of the NHI might re­quire as much as R140bn be­tween 2012 and 2025.

Ex­actly how the NHI will look, and how much it will cost, is by no means clear at this stage.what is an un­avoid­able truth is that it will re­sult in an ad­di­tional need for tax rev­enue. Cur­rently the ex­tra funds re­quired can be pro­vided out of ex­ist­ing tax col­lec­tions. How­ever, as the cost of the NHI rises into bil­lions of rands, ad­di­tional taxes are likely to be nec­es­sary.

The op­tions that were mooted by the Fi­nance Min­is­ter at the time of his an­nual Bud­get Speech in Fe­bru­ary last year were “a pay­roll tax (payable by em­ploy­ers), an in­crease in the VAT rate and a sur­charge on in­di­vid­u­als’ tax­able in­come.” It was stated that these were merely op­tions and that a process of con­sul­ta­tion would be fol­lowed to de­ter­mine op­ti­mum fund­ing so­lu­tions.

The choice of these op­tions is by no means sur­pris­ing. At present we de­rive about 80% of our to­tal tax rev­enue from — in de­scend­ing or­der — in­di­vid­ual in­come tax, Value Added (VAT) and cor­po­rate in­come tax. There­fore, in look­ing to fund an am­bi­tious and ex­pen­sive project such as the NHI, it is in­evitable that the Fi­nance Min­is­ter would look first to new sources of rev­enue close to these three ar­eas.

Tax is, of course, an emo­tive sub­ject, par­tic­u­larly when it hits the pock­ets of in­di­vid­u­als, as at least two of these op- tions would do. The sug­ges­tion that the VAT rate might be in­creased can be seen as par­tic­u­larly con­tro­ver­sial, since VAT is per­ceived to be a tax on the poor. It may be that the Fi­nance Min­is­ter was fly­ing a kite — or fly­ing three kites — to gauge the emo­tional re­sponse to these sug­ges­tions. Given the lack of cer­tainty re­gard­ing the NHI, the tax op­tions are still no clearer than they were at the time of the Bud­get Speech. How­ever, the three op­tions sug­gested then prob­a­bly re­main the most likely sources for fu­ture tax rev­enue for the NHI.

The three op­tions are un­der­pinned very dif­fer­ent philo­soph­i­cal ap­proaches to the is­sue of public health. The decision as to which tax — or com­bi­na­tion of taxes — should fund the NHI says much about who the pow­er­sthat-be feel should be pay­ing for public health.

VAT is per­haps the form of tax­a­tion most closely re­lated to the main in­tended ben­e­fi­cia­ries of the NHI. It seems safe to say that NHI is in­tended pri­mar­ily for the ben­e­fit of the poorer sec­tors of our com­mu­nity. There­fore, to the (limited) ex­tent that it can re­ally be said that VAT is a tax on the poor, at least an in­crease in the VAT rate to fund the NHI will mean that the poor are mak­ing a con­tri­bu­tion to the cost of the scheme.

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