VAT will spAre heAlThcAre, hiT premiums

dubai — The cost of healthcare services will not escalate when the UAE implements value added tax, or VAT, from January 2018, albeit the premium on medical insurance is likely to go up by five per cent, tax experts and healthcare providers said.

VAT, the GCC-wide tax reform, will impact all the goods and services with the exception of a few categories of supplies that are classified as either exempt or zerorated. In the UAE, these include healthcare which is on track to hit Dh103 billion by 2021, education, residential properties, international and local transportation, experts said.

“While we are still anticipating further details on the definition of healthcare services by the UAE government, the zero-rated VAT treatment for the healthcare sector means that prices for these services should not be affected,” said Dr Azad Moopen, founder chairman & managing director, Aster DM Healthcare.

Prasanth Manghat, CEO, NMC Healthcare, said the cost of medical treatment is not likely to rise under the current circumstances. “The UAE Ministry of Finance has listed ‘supply of certain healthcare

services and supply of relevant goods and services’ as zero-rated. Essential medicines are also zerorated. However, selective healthcare services such as cosmetic treatments will attract VAT at five per cent,” he said.

Analysts said it is still not clear whether the supply of medical insurance, third party administrator fees, dental, optical, cosmetic and fertility consultancy shall be zerorated or subject to standard rate of five per cent. James Mathew, group CEO of Horwath MAK, said across most VAT-implemented countries, prescribed healthcare services are traditionally exempt from VAT.

Exemption means that no VAT will be charged for offering such supplies and VAT incurred in relation to making these supplies will not be recoverable.

“Prescribed healthcare services could include medical and dental services and extend to room accommodation and meals for patients, prescription drugs and medical equipment supplied to patients in the course of receiving exempt healthcare services; input tax incurred in making these supplies will be irrecoverable,” Mathew explained.

However, other healthcare services are subject to VAT which may include cosmetic surgery, traditional and alternative medicines and therapies (such as reflexology, acupuncture, naturopathy, etc.), Herbal medicines, cosmetic products, supplements, rental of clinics to doctors, room and food for non-patients, car parking fees and televisions rented to patients. In these instances, input VAT will be recoverable.

Surandar Jesrani, partner & CEO of Morison MJS Tax Consultancy, said it is important to clearly understand the definition of “healthcare services” and “relevant goods and services” so as to determine the VAT applicability.

“In case medical insurance is not within the definition of “relevant services” then five per cent VAT would be applied on medical insurance and accordingly the cost of medical insurance would go up,” said Jesrani. Impact on common man Tax experts said while prices of the taxable goods would increase by five per cent after VAT gets implemented, its impact on common man would be minimal as major other expenses such as housing rent, education and transportation remain outside the ambit of VAT.

Mathew said an individual would not be affected with applicability of VAT on healthcare because prescribed healthcare services are going to be exempt or zero-rated. Other healthcare services are ancillary in nature but not prescribed is and will be subject to VAT. These services are optional and individual will bear the tax burden, should opt for it. Effect on private hospitals The likelihood in the GCC context is that ‘private hospitals’ will make supplies which would be considered as exempt as well as supplies that are subject to VAT. “This will mean that VAT incurred on common overheads (such as marketing and promotional costs, utilities, purchases of office furniture and goods) will not be fully claimable and must be apportioned; meaning that only a portion of VAT incurred on such expenses is claimable in proportion to the amount of taxable supplies made over total supplies.” .

Businesses offering supplies subject to VAT are entitled to recover input VAT incurred on their business expenses. In case of supply of exempt goods and services, input tax credit will not be recoverable and ultimately businesses are required to absorb the VAT cost.

The UAE Ministry of Economy has clarified that certain healthcare services and related supplies will be zero-rated in the UAE, which allow healthcare providers to recover input VAT, leading to lower costs. The list of medicines and medical equipment to be zero-rated is not available yet. Zero-rated versus exempt VAT For a “zero-rated good”, the government doesn’t tax its retail sale, but allows credits for the valueadded tax paid on inputs. This reduces the price of a good. Governments commonly use zero-rated goods to lower the tax burden on low-income households by zerorating essential goods, such as food and utilities or prescription drugs.

Even though there is no VAT on zero-rated supplies, the zero-rate is a rate of tax, and businesses that make only zero-rated supplies can register for VAT and recover the VAT on their costs and overheads.

In contrast, a good or business is “exempt”, the government doesn’t tax the sale of the good, but producers cannot claim a credit for the VAT they pay on inputs to produce it. It can sometimes raise prices and revenues. Hence, governments generally only use exemptions when value-added is hard to define, such as with financial and insurance services.