VAT: Higher private medical costs over-burden State health system
by Ravi Abeysuriya
One is not against the imposition of VAT so long as essential
commodities and public utilities are taxed at a bearable minimum. VAT on
healthcare services was exempt in Sri Lanka until May 1, 2016, as the
principal purpose of the healthcare service was "protection, maintenance
or restoration of the health of those who are sick".
The primary purpose of healthcare service is "protecting, (including
maintaining or restoring a patient's health) or diagnosing, treating and
if possible curing diseases and health disorders."
Almost all countries charge general consumption taxes on goods and
services to consumers. The majority of countries use VAT, which is
collected during the production and distribution of goods and services.
As of January 1, 2014, 164 countries had VAT, other countries had a
single-stage sales tax such as BTT on goods and services supplied to the
final consumers. However, almost all the countries have an exemption (or
zero rate) or a reduced VAT rate on essential commodities such as basic
food, healthcare services energy and water considered socially
desirable.
This was primarily to reduce the tax burden on essential commodities
that forms a larger share of expenditure among poor households. In a
review done by Price Waterhouse Coopers, in 2014, 31 out of 32 OECD
countries and 24 out of 25 African countries either have VAT exemption
or a reduced rate of VAT and/or BTT on healthcare services.
Unjustifiable
In the absence of a decent national hospital scheme or even a
national health insurance scheme in Sri Lanka, imposition of a steep 15%
VAT on those who are sick, where a majority of the patients are lower
middle class who have no choice but to seek healthcare facilities in the
private sector, is unjustifiable.
A majority of them do not wish to go through the hazards and travails
of Government hospitals in a non-paying ward, because their conditions
are so appalling: floor patients, dirty bathrooms, and no care during a
strike of attendants, nurses or doctors.
Getting a paying room or ward is next to impossible in Government
hospitals. Those who work in the private sector and the self-employed do
not have the time to queue up at clinics that need a number be obtained
early morning and wait for ones turn spending at least half a day to
obtain medical services.
Smaller government hospitals in the outstations request patents to
obtain blood and scan reports from outside as they do not have such
facilities. Most government laboratory services take 2-3 weeks to
provide diagnostic reports for OPD patients thus aggravating the
patient's sickness. Hence, people seek private healthcare services not
by choice but due to sheer necessity.
Burden
Sri Lanka has one of the fastest aging populations in the region. The
imposition of a 15% VAT on healthcare services even on senior citizens
who have served the country and are now struggling to make a living is
an unbearable burden.
Hardly any insurance company provides medical insurance cover for
those over 65. Most countries look after their senior citizens and
provide concessions such as reduced or free travel fares, entry tickets
leisure events to their senior citizens.
However, in Sri Lanka, after devoted service to the country, senior
citizens are treated like squashed lemons by being charged a 15% VAT by
the very government that promised welfare to senior citizens. The
overburdened state funded healthcare services will have more pressure if
most senior citizens start seeking healthcare services from government
hospitals.
Even in countries that have superior national healthcare facilities
such as UK and China VAT and BTT exemption on healthcare services are
applicable. For example, in the UK performing medical or surgical
procedures with the aim of protecting, maintaining or restoring the
health of an individual, nursing sick or injured patients in a private
hospital, hospice or nursing home is exempt from 20% VAT.
But where the service is carried out for a cosmetic reason rather
than as an element of medical or surgical treatment, this service is
taxable at 20% VAT. The tendency of policymakers globally has been to
retain existing BT exemptions and concessions, and apply them in the VAT
system, especially where those exemptions and concessions apply to
services delivered at a business-to-consumer (B2C) level.
Necessity
Basic healthcare is seen as a necessity, and given the regressive
nature of VAT, providing concessions is seen as appropriate in ensuring
fair and equitable outcomes, especially for the aged, poor or infirm.
Some countries exempt healthcare from VAT, whereas others zero-rate it.
Zero-rating means that healthcare providers can obtain a VAT refund on
their costs and expenses, whereas exemption does not. In the UK
prescription medicine is zero rated, not just exempt. Sri Lanka has
exempted medicine but not medical services.
Sri Lanka has joined a club of States that charge value added tax on
medical services which are almost universally exempted in many countries
where private citizens are not ill-treated.
Compared to most other costs even Telecommunication Services, which
also has been imposed the 15% VAT, are discretionary and citizenry can
reduce usage, whereas healthcare expenditures are a misfortune to a
family, almost essential (alternative is to die) are sudden and can be
very large. Ironically, even if one is fortunate to have medical
insurance cover, medical insurance providers in Sri Lanka will not
reimburse the VAT component unless the hospital invoice is obtained in
the name of the medical insurance provider. Since, May 2 all healthcare
service providers and laboratory service providers add the 15% VAT on
the total invoice value, making healthcare services providers make fat
margins.
They need to be cognizant of the fact that previously they were
bearing all input VAT as their input VAT was not previously refundable
in Sri Lanka (not zero rated), hence the patients should not be passed
on the full impact of the 15% VAT.
While no one will disagree that it is imperative that the government
needs to increase the tax base and increase total government revenue as
a percentage of GDP to meet debt commitments.
There are better and more equitable ways to generate revenue - by
reducing reducing losses, wastage and corruption in government owned
undertakings rather than passing on the cost increases to the sick and
the aged.
Ravi Abeysuriya is the Group Director and CEO of the Candor Group and
is a Fellow Member of the Chartered Institute of Management Accountants,
UK, and a Chartered Financial Analyst, USA and has an MBA from Monash
University, Australia. |