The mooted medical aid capped deduction amount to apply from March next year has been changed to a tax credit applicable to all taxpayers other than those aged 65 or more, a tax expert cautioned on Tuesday.
A new medical tax approach was announced in the budget earlier in the year to replace the basic R720 and R440 basic deductions system, but a concern was that the proposed system may actually benefit wealthier people at the expense of poorer ones.
Ron Warren, tax expert and executive chairman of payroll software company NuQ, says a tax rebate will now be granted, instead of a capped deduction of medical aid contributions that is deducted from taxable income.
The reason for this is stated to be that the medical cap amount is more favourable to high earners than low earners.
"To a person paying tax at the marginal rate of 40 percent a cap amount deduction will be worth 40 percent of the deduction, whereas for a person paying tax at 18 percent the deduction will be worth only 18 percent of the deduction."
Warren says that this is regarded as unfair, in that the allowance should result in the same tax saving for rich as for poor people, which is achieved by the tax credit, which is a deduction from tax (i.e. a tax rebate).