The current medical deduction system provides relief for individuals contributing towards medical schemes and out-of-pocket medical expenses. However it is inequitable in that it affords greater benefit to higher income taxpayers. Will the Finance Minister's decision to replace the current medical deduction allowances with medical tax credits be more equitable and fair to taxpayers across all income groups?
The changes to the medical credit system will most definitely be more equitable to all income groups as it removes the benefits higher bracketed taxpayers receive. In general, taxpayers who earn enough to fit into the 30% - 40% tax bracket had a much bigger benefit than those in the 18% - 25% bracket under the old deductions system. This is because their deduction being multiplied at this higher rate obviously resulted in a greater tax benefit. The new system provides for equal credits for all taxpayers regardless of income levels. The tax credit reduces the tax payable amount and not the taxable income thereby not being affected by the marginal rates.
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