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Friday, October 25, 2013

Zero GST for medical devices

Published: 2013/10/24

Over four decades after making a name for itself as an electronics powerhouse and preferred location for investors looking for highly-skilled workers, Malaysia continues to draw firms which are in search of skill sets and services not offered by its neighbours.

While the electronic and electrical (E and E) sector continues to be the heartbeat of the northern states of the country, the emergence of other sectors - such as medical devices and the now-emerging aerospace-related activities - should also be given due prominence.

The Association of Malaysian Medical Industries (AMMI) members last year increased their investments in their local operations by RM400 million compared with 2011, with some RM44 million spent on research and development activities.

Results from a survey on medical devices carried out by AMMI was a steady increase in investments by the members over the years and the amount had reached RM3.2 billion last year, which was more than doubled the RM1.5 billion in 2008.

The 45-member association which was established in 1989 - and includes global names like B.Braun, Dupont, 3M, Teleflex and St Jude Medical - had exported some RM5.9 billion worth of medical devices last year from Malaysia, out of the country's total exports of RM12.9 billion.

Malaysia’s export of medical devices is projected to reach RM13.7 billion this year, with AMMI members targeting to 
achieve an eight to 10 per cent export growth.

As the country's medical technology industry forges ahead and is recognised as a regional hub for the medical devices manufacturing sector in Asean, local players in the industry are said to be faced with the challenge of being unable to have fair access to the domestic market.

AMMI has previously called for the national procurement policy to be revamped and include criteria and preferences for products with high local content.

The policy, the association had noted, should accord due regard to investments made by both local firms and multinational ones in the country, over imported products or local products with cursory local content.

With the impending introduction of the goods and services tax (GST), the cost of healthcare delivery in Malaysia is 
bound to be impacted.

A GST draft document, it is learnt, states that only medicines supplied by hospitals are exempted from the GST (and not even zero-rated).

In ensuring that Malaysians will not be overly-burdened by any increase in healthcare costs, it may be timely to classify medical devices belonging to Class 2 and above as essential items and in the zero-rated category.

Zero-rated supplies are taxable supplies which are subject to a zero rate, which is not liable to GST at the output or input stage.

AMMI's survey this year noted that the domestic consumption of medical devices is expected to grow by 50.4 per cent to reach US$1.7 billion in 2015, from US$1.13 billion in 2010.

Over 85 per cent of the medical devices in Malaysia are imported, mostly from the US. 

The majority of the medical devices currently produced in Malaysia belong to Class 1 non-invasive and Class 2 
semi-invasive products, notes AMMI.

If healthcare costs are to be kept in control in Malaysia, it may be prudent for the Government to allow companies whose medical device products are being manufactured on our own shores and are good enough for the rest of the world, to start selling on home ground.

Also to be considered is that once Malaysia implements its GST structure, medical devices should be placed in the same zero-rated category as pharmaceutical drugs.

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