NHI tax warning – where every taxpayer must pay an extra R27,000

The government’s National Health Insurance (NHI) scheme will need an estimated R200 billion in additional funding, meaning South Africa’s 7.41 million personal income taxpayers could pay an additional R26,992 in taxes each year.

In mid-May this year, President Cyril Ramaphosa signed the NHI Bill into law. The scheme aims to achieve universal coverage for health services and, through this, overcome critical socio-economic imbalances and inequities of the past. 

The legislation provides a framework for the provision of universal care through a state-run fund and will ban the private sector from financing treatment covered under the plan. 

While the government has promised that the signing of the NHI into law will result in universal healthcare free at the point of delivery, this ambition is far from reality. 

Apart from challenges relating to whether it will pass Constitutional muster, business leaders and experts are concerned that the scheme has no clear funding mechanism. 

The Department of Health has confirmed that tax increases and other tax changes are planned to fund the NHI. However, it has not been clear which taxes will be raised or if a new tax will be introduced. 

NHI Deputy Director General Nicholas Crisp said the only way to move medical aid money into the NHI fund is through taxes.

“Whether that is through VAT or other taxes is a matter for the National Treasury and the Money Bill, which will come later,” he said.

South Africa’s largest medical aid provider, Discovery, revealed during its interim results presentation earlier this year just how much the government would have to raise taxes to fund the NHI. 

It urged the government to work with the private sector to make universal healthcare work in South Africa. 

The company laid out the tax increases that would be needed to fund the NHI, which would require around R200 billion in additional funding each year, according to the Department of Health –

• A 31% increase in personal income tax or
• A 6.5% increase in VAT or
• A ten times increase in payroll tax

Health Minister Joe Phaahla has also confirmed that the funding will likely include tax increases and other tax changes.

In a parliamentary response, he said that clause 49 of the NHI Bill deals with the scheme’s funding.

“Possible tax amendments will be introduced through a Money Bill by the Minister of Finance as and when appropriate and earmarked for use by the fund,” he said.

The Health Minister added that NHI funding is subject to the “transitional arrangements” provided in Section 57 of the Bill.

In its February 2024 Budget, the National Treasury reported that the country had 7.41 million personal income taxpayers.

If the additional R200 billion in funding is split evenly amongst them, every taxpayer would pay an additional R26,992 in taxes.

In its concerns for the implications of the NHI, medical scheme Bonitas said detail is lacking in terms of the funding of the NHI. 

“The most likely option is additional taxes. However, until the NHI implementation plan is finalised, it is difficult to know what the actual costs will be,” it said. 

“A fact, though, which needs to be taken into account, is that taxpayers, including private medical scheme members, already fund 75% of the public health budget.”

Health insurance agency Affinity Health also said the NHI’s financial implications are profound, with initial estimates suggesting substantial fiscal requirements. 

“The NHI Bill specifies that the scheme’s financing – though not yet officially priced, is estimated to require over R700 billion annually – will be sourced from tax revenues,” the company said.

This is far higher than the R200 billion estimates other schemes have projected.

Tax Consulting SA said the signing of the NHI has sparked a wave of concern among various South Africans, especially among medical professionals, medically high-risk individuals, and cautious taxpayers. 

“This healthcare reform initiative promises to provide universal healthcare coverage to all citizens, but its implementation has raised many unanswered questions,” it said. 

“This may be the final straw that leads South Africans to emigrate.”

The organisation said medical professionals have them to assist with their potential emigration because they do not want to work for the government. 

“Families with medically at-risk members fearing for their loved one’s future in South Africa. As well as numerous taxpayers uncertain about the tax burden for the funding of these healthcare provisions and the potential burden on the economy,” it said.

“In response to the initial warnings about the potential challenges associated with the NHI, including uncertainties about funding, taxation and healthcare provisions, many individuals and families have sought professional assistance in emigration and externalising their financials and assets.” 

“This involves legally structuring their assets, investments, and income streams in a way that minimises tax exposure on exit.”