Things have been a bit tumultuous after the introduction of the VAT in the GCC. Although businesses had to face some issues while adapting their annual budgets as per the local VAT laws, overall things have been smoother for the GCC.
Although prescribed healthcare is generally exempt from VAT implemented by the GCC, some nations might be going for a zero-rate. This means that there will be no Value Added Tax on providing healthcare supplies and any VAT that was incurred when making these supplies cannot be reclaimed. The aforesaid healthcare services include general medical as well as dental services and also include non-medical procedures in the services. These are room accommodation, meals for patients, usage of medical equipment and prescribing drugs. Any tax that goes into carrying out these services cannot be recovered.
Further, many other services will be subjected to VAT, including cosmetic surgery, alternative medicines, traditional therapies, rental collected by doctor’s clinic, car parking fees, room and food services meant for non-patients and equipment that were rented to the patients such as TVs. Though, when it comes to these services, tax input will be recoverable.
The Value Added Taxon the servicesprovided by private hospitals considered in the GCC context can be foreseen in a way that private hospitals will be making extra supplies that are exempted from the VAT. This means that the Value Added Tax included in common expenses such as marketing costs, office furniture purchase, purchase of other goods and utilities will not be completely claimable and should be apportioned. This concludes that only a portion of VAT incurred on expenses like these is claimable in proportion to the number of taxable supplies that were made on the overall supplies.
An analysis of historical data from other VAT applying areas has shown that hospitals recover 5-15% of all the VAT incurred, thus increasing the costs rendered by hospitals. These additional costs can significantly impact the pricing policy. Furthermore, according to reports, an assessment of VAT costs done early is required to re-balance the prices for 1st January 2018, in order to maintain the current levels of profitability.
However, there are additional challenges faced by private hospitals for VAT, one of these is the cost of outsourcing will increase for private hospitals under VAT, including various outsourced services such as laundries, cleaning, lab services and security services.
Given that the aforementioned items are likely the ones for exempt healthcare services, the input tax gained on outsourcing will not be claimable and will also increase the cost of conducting the business. One will need to take a review of the current outsourcing policy and identify instances where VAT is claimable.