What will value-added tax (VAT) mean to people in the UAE?
On January 1st VAT came into effect, adding a five percent tax to most sectors. As specified by the Federal Tax Authority (FTA), the healthcare sector, amongst others, is zero rated, meaning that the sale of healthcare services, treatments, medications and medical devices to patients will not be taxed.
The FTA has defined a healthcare service as any service supplied that is generally accepted in the medical profession as being necessary for the treatment of a patient, including preventive treatment. Cabinet Decision No. (56) of 2017 on Medications and Medical Equipment Subject to Tax at Zero Rate defines medications as every product containing a substance(s) which achieves the intended objective in or on the human body via biological effect, which is produced, sold or offered for use in cases relating to diagnosing, treating, healing, relieving or preventing diseases, or renewing, correcting or rehabilitating the function of body organs. This aims not only to continue making healthcare accessible to all, but also to encourage people to opt for preventive measures, which is in line with the government’s health strategy for 2021.
This means that when visiting the doctor, patients will not pay a tax on top of the provided service, regardless of whether it is a general consultation, a treatment-specific consultation, or a vaccination. Other services and goods excluded from VAT are medicine, medical supplies and medical equipment not listed in the Cabinet Decision. According to the FTA, cosmetic procedures and other elective treatments will be subject to VAT, except those prescribed by a medical professional for treating or preventing a medical condition. Some treatments need to be further clarified in terms of the effects VAT will have. For example, a breast cancer patient that requests reconstruction will be subject to the 5% VAT because implants are considered non-essential and cosmetic.
Whilst some experts anticipate a slight inflation in prices across sectors due to VAT, in healthcare, the cost of medical visits and treatment alone is not expected to rise significantly. Rather, medical costs are climbing due to the over-prescription and overuse of medicines, patients who “window-shop” for specialists, and the high cost of research and technology. Additionally, with the introduction of VAT, experts foresee that health insurance premiums will be impacted. This is because some insurance premiums cover wellness services, alternative medicines and therapies, such as acupuncture, naturopathy, reflexology, Chinese medicine, etc., which are not considered essential to ensure one’s health, making them subject to VAT. The following are a few tips to help individuals successfully navigate the early days of VAT:
- If you are planning to have a specific procedure done, ask your doctor and medical facility’s cashier whether the procedure falls entirely within a medical and clinical work frame, or whether a part of it will end up being subject to VAT. For example, this could be the case with a rhinoplasty procedure (a cosmetic procedure), with an end purpose to correct a sinus problem (such as a deviated nasal septum), as well as to change the nose aesthetically.
- Ask your insurance company if the cost of your premiums and/or benefits will change.
- Pay attention to your receipts. Expect to see new lines printed onto them. These will show whether an item you bought from the pharmacy is subject to VAT or not.
- In the initial phases of rolling out VAT, anticipate that there may be some grey areas with regards to whether items such as wellness devices and wearables and supplements will be subject to VAT.
- Whilst most of regulations are set, expect that the taxation system will evolve over time, as is natural to any new system.
For a medical provider, the implications are slightly different. Whilst healthcare remains zero rated for medical providers too, goods and services used to run daily operations such as, cleaning services, utilities, etc. will be subject to VAT. However, medical providers can claim the VAT back. This means that they need to account for VAT even if it will be claimed back. In order to achieve this, the majority of providers need to have IT systems to help accurate bookkeeping, organize cash flows and execute and process VAT. Furthermore, providers, who outsource to laboratories and pharmaceutical factories, will likely have to incur the five percent tax on other supplies and services. For those who are not already invested in infrastructure, significant costs like IT and accounting system set up might have to be passed on to the consumers. The conclusion will be higher costs for healthcare providers, potentially making it more difficult to attract new providers and probably eliminating some smaller clinics for whom the costs become disproportionate and leads a more mature market.
For large hospitals and medical providers, which may have international headquarters and are subject to VAT in other markets, VAT only means consolidating the business cash influx and managing the contracts locally. For local SMEs in the healthcare sector, they need to equip themselves with skilled staff that understand VAT, and the technology to support the tax system.
Although many people will be impacted by VAT, the implementation of five percent is not as significant as in other countries, such as the UK, where VAT ranges from 17.5 to 20 percent. In the long term, it will reinject investment back into UAE infrastructure and yield positive returns with accuracy and efficiency in documentation and increased regulation of payments.