Medical tax credits ‘leave most sickly out in cold’

WHILE the transition from tax rebates to medical tax credits might see low-income earners’ take-home salaries increase, the transition would come as a major blow to people needing significant medical support to survive, experts said yesterday.

Finance Minister Pravin Gordhan said yesterday the tax credit for contributions to medical schemes would be introduced from March 1.

People under the age of 65 will receive a tax credit of R230 a month for the first two beneficiaries and R154 each for additional beneficiaries.

He said taxpayers 65 years and older and people with disabilities would be included in the second phase of this reform, which would be implemented in 2014.

Mariné Erasmus, a senior health economist at Econex, said the tax credit was a much fairer option that should benefit low-income earners more.

She said because the current medical tax rebate system was proportional to one’s income and the amount spent on medical expenses, low-income earners were disadvantaged.

“With the old system the more you spent on medical expenses, the more you’d get back and now… everyone will get up to the maximum credit of R230 and it doesn’t matter how much you spend,” she said.

But audit firm Pricewaterhousecoopers (PWC) said because people with handicapped children and family members needed extra medical support well in excess of any normal level of expenditure, the quality of care given to these people might be affected.

The company said this was because from March 1, 2014, expenses relating to the handicapped would no longer be deductible, although to the extent that expenses exceeded three times the total allowable tax credits, a third of this would be converted to a tax credit.

Alex van den Heever, the Old Mutual chair of social security systems at Wits University, said the shift to credits would be favourable to high-income earners but it was more economically fair because the methodology would no longer be based on deductions.

Andre Jacobs at Aon Hewitt said the tax credit was more equitable since it provided for an equal benefit to all taxpayers regardless of their income.