VHIS is more than tax deductions, be mindful of the calculation and get insured wisely

HONG KONG SAR - Media OutReach - 13 March 2023 - Voluntary Health Insurance Scheme (VHIS) policyholders are eligible to claim up to HK$8,000 for tax deduction. If we use a tax rate of 17% for calculation, the total tax deduction exceeds HK$1,300. However, many policyholders focus on saving the most tax, but neglecting the actual premium paid, and end up saving less money.

VHIS Tax Deduction Claimable Limit & Calculation

Each policyholder and taxpayer can claim up to HK$8,000 of VHIS premium for tax deduction. If the annual VHIS premium exceeds this amount, only HK$8,000 can be claimed.

The tax deduction amount is calculated as below -

Formula
VHIS premium paid during the assessment year	X Tax Rate	= Actual Tax Deduction Amount
Example
HK$8,000 （Tax Deduction Claimable Limit ）	X 17% （Assuming the Tax Rate is 17%*）	= HK$1,360

*The tax rate varies between policyholders, depending on the salary.

Many may think choosing a VHIS with higher premium allows them to enjoy higher tax deduction, and save more money. However, it is not the case.

Instead of saving tax, you spend more for a more expensive VHIS plan with similar Protection

Formula shows policyholders could enjoy higher tax deduction with more expensive plans.

However, Bowtie's calculations show that the most cost-effective way is to purchase a Voluntary Health Insurance Scheme (VHIS) Policy with a lower premium but adequate protection.

	Case 1: Purchase a more expensive VHIS plan^	Case 2: Purchase a more affordable VHIS plan^
Tax Deduction Claimable Limit	HK$8,000	HK$3,372
Tax Deduction Amount （Assuming the Tax Rate is 17%*）	HK$8,000 x 17% = HK$1,360	HK$3,372 x 17% = HK$607
Yearly Expenses （Actual Paid Premium - Tax Deduction Amount）	HK$8,000 – HK$1,360 = HK$6,640	HK$3,372 – HK$607 =HK$2,765

*The tax rate varies between policyholders, depending on the salary.
^ VHIS with similar protection

From the yearly expenses, we could see case 2 saved two times more money than case 1.

Most money is saved when the family member with the highest income applies for the tax deduction as the Policyholder

Higher the income, higher the tax rate. If the family member with the highest income purchases VHIS for the whole family, and applies for tax deduction, most money will be saved.

Bowtie will demonstrate the internal calculations with an example from Case 2.

	Case 2	Case 2 - Family Member a	Case 2 - Family Member b	Case 2 - Family Member c
Tax Deduction Claimable Limit	HK$3,372	HK$4,476	HK$1,920	HK$2,196
Tax Deduction Amount （Assuming the Tax Rate is 17%*）	HK$3,372 x 17% = HK$607	HK$4,476 x 17% = HK$761	HK$1,920 x 17% = HK$326	HK$2,196 x 17% = HK$373
Yearly Expenses （Actual Paid Premium - Tax Deduction Amount）	HK$3,372 - HK$607 = HK$2,765	HK$4,476 - HK$761 = HK$3,715	HK$1,920 - HK$326 = HK$1,594	HK$2,196 - HK$373 = HK$1,823

*The tax rate varies between policyholders, depending on the salary.

From the above demonstration, we could see that if one member of the family purchased VHIS for the other three members, they could save HK$1,460 more tax than before (versus saving only HK$607 for one member).

Last Tip - The most "money-saving" way is to...

The family member with the highest salary should purchase VHIS for the entire family and claim for tax deduction. Then, when choosing a plan, choose a plan with similar protection but a lower premium.