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Medical rebate, adjusted today gone tomorrow

- 09 April 2018

Author: Wesley Grimm

The Income Tax Act 58 of 1962 (ITA) was amended in 2012 to provide for a different method of treating medical expenses for individuals. The former system, which allowed for a deduction of medical aid contributions against an individual's taxable income, was replaced by a medical tax credit system (MTC). The MTC consists of the medical scheme fees tax credit (section 6A) and the additional medical expenses tax credit (section 6B).

The MTC was originally implemented to grant a measure of tax relief to those individuals incurring certain medical-related expenses, specifically lower and middle-income taxpayers.

At present, a taxpayer responsible for contributing to the medical scheme of another person is allowed, as a rebate in terms of section 6A, a fixed, monthly amount determined by the Minister. This amount has been increased in the Budget from ZAR 303 to ZAR 310 per month for the first two beneficiaries and from ZAR 204 to ZAR 209 per month for the remaining beneficiaries.

The adjustment fails to account for the full effects of inflation and is expected to yield additional revenue of ZAR 700 million in the 2018/19 tax year, ZAR 640 million in 2019/2020 and ZAR 580 million in 2020/21. This additional revenue is ear-marked to contribute to the National Health Insurance (NHI) system. The additional revenue, however, is unlikely to have a significant impact on the cost of the NHI, which is currently anticipated to be in the region of ZAR 250 billion upon commencement.

National Treasury now also argues that some individuals are "excessively benefiting" from the MTC, specifically where multiple taxpayers contribute to the medical scheme fees or other medical expenses of a third party eg where adult children jointly contribute to an elderly parent's medical scheme. Consequently, the Budget proposes that where taxpayers carry a share of the medical scheme contribution or medical cost, the MTC must be apportioned between the various contributors.

If the Davis Tax Committee's recommendations on the MTC align with National Treasury's thinking, it may be deduced that the MTC's days are numbered. Simply stated, if the MTC is abolished, an additional ZAR 300 to ZAR 1,000 per month will be taken out of the pockets of, specifically lower and middle-income, households and made available to the fiscus.