National Health Act, 2003 (Act No. 61 of 2003)NoticesNational Health Insurance Policy towards Universal Health CoverageChapter 7 : Financing of NHI7.5 Options for public funding of NHI7.5.4 Other possible tax instruments |
| 233. | While taxes on consumption and income are the main available sources of revenue, there are various other taxes and levies that could contribute to financing NHI. |
| 234. | There is an obvious appeal in the idea that duties on alcohol and tobacco products should contribute to financing health services, as their consumption adds substantially to the burden of disease and injury. This is a route that some countries have followed, though it is unrealistic to expect a major share of financing to come from these taxes. There are two main drawbacks. Firstly, high rates of tax on alcohol and tobacco products lead to an increase in illicit trade (resulting, for example, in higher consumption of tobacco products that are neither taxed, nor subject to health regulations). Secondly, the revenue-raising potential is insufficient relative to the quantum of health financing required. |
| 235. | For the 2015/16 tax year, about R17.3 billion in revenue was raised from cigarette sales and R21.7billion from taxes on alcohol sales. Even substantially higher rates of tax would not yield sufficient revenue to meet long-term health financing needs, in part because of the loss to illicit trade and in part because these products make up a small and possibly declining share of overall consumption. Excises or duties on other non-essential goods and services, and taxes on wealth or property, are sometimes proposed as options for health service funding. The securities transfer tax (STT), currently payable at a rate of 0.25 per cent, contributed R 5.5 billion to the fiscus in 2015/16. The Estate Duty is a form of wealth tax, which yielded R2 billion in 2015/16. |
| 236. | While these are possible revenue sources, there are no clear reasons why they should be dedicated to health expenditure rather than general revenue. In respect of their revenue collecting potential, these options have little to offer by comparison with taxes on income and consumption. Furthermore, it is impractical to base health financing arrangements on taxes that are intrinsically unreliable or volatile as sources of finance, or costly to collect. |
| 237. | In exploring NHI financing options, consideration might also be given to the implications of the carbon tax proposed as part of South Africa’s efforts to mitigate the effects of climate change. During the first phase, the proposed carbon tax regime, which will allow a minimum tax-free threshold of 60 per cent, is projected to generate over R8 billion per annum. It is not intended to increase the overall tax burden, and offsetting measures to address adverse impacts on low-income households and industry competitiveness will be introduced. Depending on the exact quantum of tax revenues raised and the amount of such tax revenues that will remain after funding various revenue recycling initiatives, there may be scope to reduce other taxes. |
| 238. | This might be viewed as a suitable way of contributing to NHI for two reasons. Firstly, the carbon tax can be linked to health concerns through adverse impacts on the environment and quality of life associated with climate change. Secondly, the revenue raising potential is higher than the other taxes explored and could possibly increase in subsequent phases (from 2020) as the tax free thresholds are progressively decreased. However, this should not be seen as a tax base that will continue to expand indefinitely. The primary objective of the carbon tax is to encourage a change in behaviour through the pricing of an externality, and the ideal is to see an eventual decline in the carbon intensity of the economy that should ultimately lead to a decrease in associated tax revenues over time. |