Medical tax credits rise in line with CPI

PF med tax reliefiol PF Illustration: Colin Daniel

The tax credit or rebate you enjoy for paying contributions to a medical scheme will increase on March 1 from R270 to R286 for yourself and your first dependant registered on the scheme, Finance Minister Pravin Gordhan announced in his Budget this week. For further dependants, the credit will increase from R181 to R192.

The increases are 5.93 percent and 6.08 percent respectively, which is more or less in line with inflation at 6.2 percent, as measured by the Consumer Price Index, for the 12 months to the end of January.

Late last year, medical schemes announced a wide range in contribution increases, from 3.3 percent to 14.95 percent. Many members faced increases of between eight and 10 percent.

StatsSA reports that medical inflation from January last year to January this year was 9.5 percent.

Mariné Erasmus, the head of the health economics unit at Econex, a firm of consulting economists, says the tax credits are not keeping up with the increases you, as a medical scheme member, face. This has been the case since the credits were introduced in 2012.

Erasmus says the tax credits are therefore decreasing as a percentage of your contributions in real terms.

The government’s National Health Insurance (NHI) white paper released in December last year suggested that tax credits for medical scheme contributions and tax deductions for out-of-pocket medical expenses be reduced to augment funding for NHI.

In a press conference before presenting the Budget speech, Gordhan said National Treasury will shortly provide more details on the NHI proposals, and while there was no intent to delay NHI, “we will only do things we can afford to do”.

Arthur Kamp, an economist at Sanlam, describes NHI as the elephant in the room and notes that the NHI white paper highlights funding shortfalls if the economy grows at 3.5 percent or at two percent, with the shortfall being particularly “onerous” when economic growth is lower.

Gordhan said in his Budget speech that South Africa’s economic growth is likely to be 0.9 percent this year, rising to 1.7 percent next year and 2.4 percent in 2018.

HOW TAX CREDITS WORK

The medical tax credit works like a rebate – the taxman deducts it from the tax you owe (if you are paying contributions to a registered medical scheme for yourself and your dependants).

Before the introduction of the credits in 2012, medical scheme members were entitled to deduct a rand amount from their taxable income. This gave more relief to members with higher tax rates.

The medical tax credit is set at 30 percent of an allowed rand amount, making it more favourable than a deduction for taxpayers who pay tax at a marginal rate of less than 31 percent.


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