DAP: Healthcare costs to spike post-GST

NOVEMBER 6, 2013

KUALA LUMPUR, Nov 6 — DAP MP Tony Pua scoffed today at Putrajaya’s assurance that healthcare costs would not surge after the Goods and Services Tax (GST) is implemented in 2015, claiming instead that prices of drugs could even spike by a staggering 7 per cent because of the consumption tax.

The Petaling Jaya Utara MP said Health Minister Datuk Dr S. Subramaniam was either “ignorant” or “lying” when the latter reasoned that because healthcare was GST-exempt in general, the tax would not impact prices.

“The Health Minister, and many other Barisan Nasional (BN) leaders is obviously either ignorant about what is meant by GST-exempt, or chose not to be truthful about it,” Pua said in a statement here.

Citing the explanation on the government’s GST website, the lawmaker pointed out that in essence, a GST-exempt product or service merely means that no GST will be imposed by the provider to the consumer.

However, he said, the provider of these healthcare products andn services such as hospitals would still be charged the GST on all products and services it purchases from its suppliers.

“For example, a hospital currently purchase a drug from the medical supplier for RM50, and sold it to patients at RM55 for a 10 per cent profit margin. 

“After the implementation of the GST, the hospital will have to pay the medical supplier RM50 plus 6 per cent GST, amounting to RM3. The cost to the hospital would hence increase to RM53.

“If the hospital were to maintain the price of the drug to the consumer, then the hospital will only be making a profit of RM2 or a 3.8 per cent profit margin,” Pua explained.

He said Subramaniam must be “daydreaming” to believe that Malaysian hospitals would be magnanimous as to absorb all the GST-induced increase in cost and continue to provide its products and services to the public at existing prices, ultimately suffering a severe squeeze in profitability.

As such, Pua said the big question is not about whether the prices of healthcare products and services will increase, it was a question of how much it will increase.

“Assuming that the hospitals were extremely kind and decides only to pass on the increase in their cost in absolute terms to the patient, then the price of the drug sold would increase from RM55 previously to RM58, based on the above example. 

“The increase in RM3 is the amount of GST paid by the hospital to the government, and hence the hospital is only reclaiming its actual increase in cost. 

“At RM58, that will already result in a 5.5 per cent increase in healthcare cost to the consumer,” he said.

However, Pua added, most hospitals and businesses tend to price their products and services based on a profit margin on their cost.

In the above example, the profit margin is 10 per cent. Pua said if the hospital intends on maintaining the same 10 per cent margin post-GST, they would then charge their patients RM58.30 for the drugs that they originally sold at RM55.

“Compared to the RM55, this will still mean a full increase of 6 per cent to the end-user or equivalent to the GST charge,” he said.

“Finally,” Pua added, “... it will be completely plausible for the hospitals to decide to round-up prices of goods and services sold to the consumers.

“In the above example, instead of selling the drug for RM58.30, they could round up the amount to sell it for RM59 instead.”

The impact, he pointed out, would mean an increase of 7.3 per cent in price if compared to the pre-GST price of the drugs.

He said it was practically impossible for the government to control the post-GST prices of goods and services in hospitals, just like there is no way of controlling the varyng prices at different hospitals today.

“Based on the explanations given by the Finance Ministry on ‘GST Exempt Supplies’, it is clear that our BN ministers either have an incompetent understanding on the impact of GST or they chose to be untruthful about its negative price impact.

“Regardless, they should stop misleading the people to claim that there will be no increase in prices and instead warn the rakyat to brace for the impact of the GST to avoid unpleasant surprises,” he said.

Pakatan Rakyat (PR) will continue to oppose the implementation of the GST, Pua added, based on the fact that the BN government has still been purportedly unable to plug the billions of ringgit worth of leakages and corruption.

“Worse, the BN has chosen to impose the GST at a time when more than 80 per cent of Malaysians don’t earn enough to pay income taxes, which means a disproportionate burden of the regressive tax will fall onto the shoulder of the poor,” he said.

In tabling the 2014 Budget last month, the Prime Minister Datuk Seri Najib Razak announced plans to implement the GST at a rate of 6 per cent by April 2015, in a move aimed at widening the government’s revenue base and trimming its fast-growing deficit.

But the federal opposition bloc claimed the Najib administration was punishing voters for its extravagant spending by rolling out a “regressive” tax system that would hike prices up.

In its own Budget, the three-party PR pactsaid it could still achieve a 5 per cent growth and cut deficit to 3 per cent without the GST. 

Plugging leakages and ending corruption, it added, would save the country RM30 billion yearly.

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