Medical tax credits first step to NHI

He said this when answering questions from reporters after Thursday's briefing by a government finance team, headed by Finance Minister Pravin Gordhan, to Parliament.

"It is a first step I think to prepare for a proper base, an equitable base for the introduction of NHI later on," Magashula said.

National Treasury said in its 2012 Budget Review that medical tax credits were a more equitable form of relief than medical deductions because the relative value of the relief did not increase with higher income levels.

Gordhan announced in the 2011 Budget that deductions for medical scheme contributions for taxpayers below 65 years (apart from those with disabilities) would be converted into such credits.

The 2012 Budget stated that monthly tax credits would be increased from R216 to R230 for the first two beneficiaries and from R144 to R154 for each additional beneficiary with effect from March 1.

"From that date onwards, where medical scheme contributions in excess of four times the total allowable tax credits plus out-of-pocket medical expenses combined exceed 7.5% of taxable income, then they can be claimed as a deduction against taxable income," the 2012 Budget Review said.

Magashula explained that the change would not make any difference to the state's revenue stream, but would be fairer that the deductions system.

He had earlier explained to MPs of the Parliamentary finance and appropriations committee that the new system would mean more relief for the lower income medical aid members than for their wealthier counterparts.

Gordhan stated in his 2012 Budget that R6 billion would be needed to fund the NHI through to the 2014/15 fiscal year and this could be funded through a mixture of an increase in Value Added Tax, a payroll tax or a surcharge on the taxable income of individuals.