Government health insurance scheme to hit salary earners harder - National | NTV

Government health insurance scheme to hit salary earners harder


Sunday August 25, 2019

If the proposed national insurance scheme is adopted in its current form, the mandatory tax salary earners pay to the government will increase by 4 per cent.
Already, employers are by law required to deduct from the salaries of their employees and forward to the government local service tax, Pay as you Earn tax (PAYE), and contributions to the National Social Security Fund (NSSF).

For instance, if someone earns Shs410,000 a month, the employer is currently required to collect a total of Shs168,500 per month from such an employee as NSSF contribution and PAYE tax. In addition, the employer will further remit to NSSF another 10 per cent of the employee’s monthly salary, Shs41,000 in this case, as its statutory contribution for the employee.
Whereas the money remitted to NSSF is eventually refunded to the employee, this happens on retirement, death or in case the employee becomes an invalid during their working life.

With the adoption of the proposed insurance scheme, a person earning a gross income of Shs410,000 will pay Shs16,400 every month, translating into an annual contribution of Shs196,800. That person’s monthly take-home-pay will drop to Shs225,100 per month, only slightly more than half of the gross salary.

On the higher end, a person currently earning Shs10m a month will contribute Shs4.8m to the government insurance scheme per year, while their employer will add Shs1.2m to make an annual contribution of Shs5m. Their monthly take-home-pay, including the proposed health insurance tax, will reduce by Shs400,000 per month to about Shs6m.

Easy target
Uganda’s low tax-to-GDP ratio has always been blamed on a narrow tax base, where the government has traditionally targeted the low-hanging fruits, which salaries are, since it is easier to order employers to deduct and remit taxes from salaries.
For the proposed health insurance scheme, for instance, the employer will be required to deduct the 4 per cent from each employee’s salary and remit it to the scheme, failure of which the employer will be fined.

The employer is also required to top up the employee’s contribution to the health insurance scheme with a further 1 per cent of the employee’s gross salary, meaning that the employer will at the end of every month surrender 5 per cent of the employee’s salary to the scheme.
This means the proposed scheme will automatically increase the cost of labour by 1 per cent. The employers are in effect already paying a tax for employing labour, which they do by being required to remit 10 per cent of the gross monthly salary of each employee to NSSF.