Medical tax credits remain, but increases are below inflation

ALTHOUGH its funding remains uncertain, the National Health Insurance (NHI) plan first put forward by the government some years ago is still very much on the agenda.

A proposed way of partially funding NHI is to remove the medical tax credits you receive to subsidise your medical scheme contributions and healthcare expenses, and it was widely expected that the scrapping of these credits would be announced in Wednesday’s Budget.

But it did not come to pass: medical tax credits remain, slightly up from last year, but not in line with inflation. The medical tax credit for the first two beneficiaries will rise from R303 to R313 a month, and for the remaining beneficiaries it will rise from R204 to R209 a month.

NHI will be allocated an additional R4.2 billion over the medium term.

Lebo Motsumi, an associate at law firm Bowmans, says it is anticipated that NHI will be implemented in 2025. In the interim, he says, its design needs to be finalised and funding, of between R75bn and R108bn a year, must be found.

He says that the final Davis

Tax Committee report on NHI, published in November last year, was clear that “the phasing-out of the medical tax credits can happen only once the NHI is fully operational. In addition, the needs of people with disabilities and the aged, and the financial implications for such taxpayers, would require special attention.”

Motsumi says that instead of removing the medical tax credits, the government’s plan is, where a number of people in a family contribute to belong to the same scheme, to split out the medical tax credits to the individual taxpayers, and to impose below-inflation increases over the next three years.

He says this year’s Budget did not provide any further details about the longer-term funding of NHI.

The revised White Paper on the NHI included funding proposals, which looked at combinations of a payroll tax, a surcharge on taxable income, and VAT increases.

Motsumi says these would effectively mean that personal income tax rates would shift by

4%. In fact, the final Davis Tax Committee report suggests that this figure is inadequate – it would need to be in excess of 6%.

He says adequate engagement with the public is essential to prevent later resistance during implementation, as happened with e-tolls in Gauteng.

Graham Anderson, the chief executive of Profmed medical scheme, says everyone believes there should be universal health care, but NHI is not the only model, and it will be expensive and is unlikely to work.

He says the current medical tax credits may be small compared with people’s medical expenses, but two million beneficiaries will not be able to afford medical scheme cover if they are removed.

He says the additional R4.2bn for NHI is to cover “priorities” that are essentially primary healthcare services that should be available through state hospitals and should come out of the total health bill. ON BUDGET Day, National Treasury released updated draft regulations on the VAT taxation of electronic services provided by foreign companies. These changes were mentioned in the Budget.

A statement by auditing firm PwC says that in 2014 the VAT

Act was amended to include in the definition of “enterprise” the supply of “electronic services” by foreign suppliers, which were required to register for VAT where supplies exceeded R50 000.

“Electronic services” included certain educational services, games and games of chance, internet-based auction services, e-books, audiovisual content, still images, music and various subscription services, but excluded services such as cloudcomputing and software, which are often supplied in the business-tobusiness (B2B) environment.

If enacted, PwC says, the amended draft regulations published this week would result in a significant overhaul of the VAT treatment electronic services.

The proposed amendments: • Repeal the current regulation and provide for the deletion of all the specific categories of electronic services previously stated; and

• Define electronic services broadly to include “any service supplied by means of an electronic agent, electronic communication or the internet, excluding the supply of telecommunications services as defined and the supply of educational services by a person regulated by an educational authority in a foreign country”.

PwC says the definition is so broad that possibly every supply of services by means of an electronic agent, electronic communication or the internet, except for telecommunications and educational services, would fall within its ambit and could potentially require foreign suppliers to register and account for VAT to the South African Revenue Service.

PwC says the VAT Act does not distinguish between B2B supplies and supplies made directly to South African consumers. “Internationally this distinction often applies and results in a lower compliance burden on foreign business,” PwC says. It also says that the registration threshold of

R50 000 in any consecutive 12-month period is, when converted to foreign currency, relatively low.

Treasury has allowed until March 22 for comments. This is an opportunity to provide input to limit the impact of these changes, PwC says. – Staff Reporter