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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 of tax design


214. The options for raising tax revenue to meet the health expenditure requirements as the phased implementation of NHI progresses are based on the following principles:
(a) Equity
(b) Efficiency
(c) Simplicity
(d) Transparency and certainty
(e) Tax buoyancy


215. The aim is to seek a revenue mix that meets these principles best and which will foster social solidarity and public acceptability. The proposed funding mechanism must be sustainable over the long term and ensures that the NHI reforms are appropriately funded. These tax design objectives correspond closely with the guiding principles of NHI, which include social solidarity, right to access, equity, efficiency, effectiveness, affordability and appropriateness.


216. A tax system can support specific social objectives in addition to its revenue raising function. Progressive income tax contributes to social cohesion by redistributing resources across income levels. Tax design can also assist in addressing externalities or other market failures, including several important health objectives. For instance, the South African tax structure includes excise taxes on alcohol and to co products, in view of the social cost associated with their consumption.


217. Finding the right balance in its financing arrangements is a key element to implementing a sustainable, efficient and equitable NHI system. Key choices need to be made regarding the following: (1) the appropriate tax base; (2) the appropriate tax mix; (3) the appropriate trade-off between efficiency and equity; and (4) the degree of progressivity. These concepts are discussed in more detail below. Efficiency and Equity Tax Mix Progressivity