A timely decision | Daily News

A timely decision

Value Added Tax (VAT) is an indirect tax imposed on various goods and services by Governments all over the world. VAT has to be paid regardless of whether you are rich or poor. VAT has become an essential tax for countries such as Sri Lanka, where the number of direct income tax payers is very low as a percentage of the overall population. In more advanced economies, where much of the working population pays direct taxes, VAT or GST (Goods and Services Tax) can be kept to a minimum.

The disparity in the tax paying population in Sri Lanka has led to a situation where the Government has to rely mostly on indirect taxes for revenue generation. In Sri Lanka, the tax ratio is almost 80 percent indirect taxes and 20 percent direct taxes. This should ideally be 50:50, but at least a 60:40 ratio could be achieved in the next few years. The new Inland Revenue laws now in effect have drastically increased the number of direct tax payers and it might indeed be possible to reduce the VAT burden in the next few years as a result. In fact, Finance Minister Mangala Samaraweera has stated that it would be possible to reduce the VAT by around 2.5 percent from the present 15 percent within the next 2-3 years.

Being a broad-based tax, VAT had to be imposed on many services including the private health sector. While Sri Lanka has one of the best free public healthcare services in the world, many middle class and upper class Lankans prefer to visit private hospitals located in Colombo and elsewhere for medical treatment. They are no doubt convenient, but at a price. Furthermore, many poor patients visit private hospitals mainly to “channel” specialist doctors in various disciplines. With VAT and hospital charges thrown in, a channelling bill usually exceeds Rs.2,500 which most patients cannot afford. Similarly, VAT is charged on medical tests and all other treatments at private hospitals, which can make a substantial difference to the final bill.

There was a general consensus among the public and politicians from all sides that some relief must be granted from VAT at least for the private health sector, given its critical importance. The Government deliberated on this issue for some time, listening to all stakeholders. After all, the Government has to balance the interests of both the Inland Revenue Department and the public who seek private health services. However, now it has taken the right decision.

VAT on consultancy fees and other fees in private sector hospitals will be removed next week, Minister Samaraweera has told guests at an event held to pay compensation to the 2017 flood affected, in Matara on Saturday. “This will in effect be a part of the public welfare programme of the Good Governance programme,” the Minister said. This will do away the VAT imposed on consultancy fees and other fees that affect patients.

Accordingly, the proposal to remove VAT on private hospital patients will be handed to the Cabinet tomorrow, by the Finance Minister, on the request of Minister of Health, Nutrition and Indigenous Medicine, Dr. Rajitha Senaratne. President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe have fully endorsed the move.

As Director General of Health Services, Dr. Anil Jasinghe has commented in our sister paper the Sunday Observer yesterday, the onus is now on private hospitals to reduce charges accordingly. In any case, the Government should review all fees charged by private hospitals, since some of the charges for simple tests and procedures appear to be outrageous even without the VAT being added. Private hospitals must be more closely supervised and regulated. The Government should also provide incentive and concessions for investors willing to set up private hospitals and healthcare facilities in the outstations. This will help many middle class patients in those areas who now come to private hospitals in Colombo for treatment.

This Government had created a revolution in the health sector with unprecedented investments for Government hospitals. Several new hospitals are coming up, including a state-of-the-art renal diseases hospital in Polonnaruwa. Judging by the tender notices in newspapers, hospitals islandwide are getting new facilities and equipment. The Government has also reduced the prices of Intra-Ocular Lenses for cataract surgeries as well as stents for heart surgeries. It has also reduced the prices of 48 essential drugs prescribed for a variety of Non Communicable Diseases from hypertension to diabetes. The prices of more drugs are to be reduced soon, especially with plans ramped up to manufacture essential generic drugs locally. Many multinational drugs companies have also expressed willingness to manufacture their drugs locally in collaboration with their local partners or distributors. This should also bring down the prices of medicinal drugs.

As the Buddha stated more than 2,500 years ago, Health is Wealth. Both the public and private health sectors must be geared to achieve the goal of a healthy nation. The proposed VAT removal from private hospitals and other healthcare centres has given an impetus for achieving this noble goal. 


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