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National Health Act, 2003 (Act No. 61 of 2003)


National Health Insurance Policy towards Universal Health Coverage

Chapter 7 : Financing of NHI

7.4 Raising Revenue to Finance NHI

7.4.2 Principles Tax Mix


220. Tax instruments can be classified as direct or indirect taxes. A direct tax is a tax imposed on a source of income (e.g. personal income tax, corporate income tax). An indirect tax is imposed on the use of income (e.g. consumption expenditure), such as goods, services or financial flows. The appropriate mix between direct and indirect taxation is relevant to the question of how NHI should be financed.


221. Direct taxes can best address equity concerns, while indirect taxes are important sources of revenue and can also influence behaviour, for example through taxes on alcohol, tobacco, and fuel. Indirect taxes also derive revenues from those outside the income tax net, such as informal enterprises. Consumption or expenditure taxes tend to be more conducive to economic growth, although concerns about their potential regressive impact should be taken into account.


222. Personal income tax is more effective from a redistribution and vertical equity perspective, but high marginal rates might have distortionary economic impacts. Payroll taxes raise the cost of employment and may have adverse effects on job creation. Value-added tax is less distortionary and more conducive to economic growth, but it is perceived to be regressive.