KUCHING: The Goods and Services Tax (GST) cost which was implemented nationwide on April 1, 2015 and included a tax on healthcare services, is expected by analysts to be eventually passed on using other means.
According to the research arm of Affin Hwang Investment Bank Bhd (AffinHwang Research), as private healthcare services were declared tax-exempted, any additional costs incurred by hospitals were not allowed to be passed on to their customers in the form of GST charges.
“Thus, private healthcare providers are expected to incur these additional costs and this is estimated to increase input costs by three to five per cent.
“If healthcare players absorb these costs, we believe this will have a negative impact on their margins,” it said.
However, AffinHwang Research expected private healthcare providers to eventually pass on these additional costs to its customers through other methods such as revising up its consultation fees or bed rental fees.
The research arm’s channel checks showed that hospitals have traditionally increased their fees by five to 11 per cent on a yearly basis to take into account inflation costs and material raw price hikes.
“Therefore, we believe that hospitals will not face major difficulties in increasing their fees progressively to pass on the additional cost stemming from GST,” it said.
That said, AffinHwang Research has already incorporated the short-term negative impact on earnings. The research arm noted that overall patient volume is expected to be slightly weaker in the second quarter of 2015 (2Q15) and 3Q15 assuming that the middle-income segment is price sensitive.
It believed that only a minority from this segment would turn to the public healthcare system as a cheaper alternative for a short period of time as they come to grips with the additional GST cost in their daily lives.
“Nevertheless, in the middle-to-long-term basis, we believe that patients will have no choice but to engage private healthcare services as they come to terms with higher costs,” it said.
AffinHwang Research noted that GST will mainly impact private healthcare providers from three different segments medical drugs, medical supplies, medical equipment, ancillary services and consultation fees.
For medical drugs, although 4200 drugs listed on the National Medicine List (NEML) are declared zero-rated, the research arm estimated that only 1000 of these medicines are applicable in private hospitals.
“Other medicines are subjected to the standard rate of GST,” it said.
As for medical supplies such as syringes, needles and others which is estimated to make up 30 per cent of total costs, the research arm noted that these will be subject to standard rate of GST replacing the same six per cent sales tax applicable before GST.
According to AffinHwang Research, up to 124 types of medical equipment are given relief under the GST Relief Order 2015.
“Furthermore, the current 10 per cent sales tax applicable to purchases of these equipment will be replaced by a lower six per cent GST rate for equipment that does not fall under the list of equipment given relief,” it said.
However, the research arm noted that cost savings on this aspect might be limited as medical equipment spending is infrequent and does not make a significant portion of total operating expenses.