The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Doctors Hospital’s president yesterday said he was “very concerned” about the potential for Value-Added Tax (VAT) to increase healthcare costs, and warned it could ultimately make private health insurance increasingly unaffordable for Bahamians.

Adding his voice to those calling for the Government to urgently publish details on its proposed tax reforms, Barry Rassin said rising healthcare costs would spark a ‘chain reaction’ - making access to private care more expensive, leading to rising health insurance premiums.

And he also expressed concern at the investment Doctors Hospital would have to make in new software systems to accommodate VAT, suggesting this could rise to $500,000.

“I see it as a major impact depending on how they do it,” Mr Rassin told Tribune Business yesterday.

“We are looking at it, but there’s really not enough information for us to make an informed decision. We need them [the Government] to tell us how it’s going to work.”

Mr Rassin said the Government’s definition of healthcare in its VAT ‘White Paper’, which defined it as ‘health and education services’, was “very limited”.

And, with this category proposed as VAT exempt, it means that Doctors Hospital and other healthcare providers who must register to pay it will not be charging the 15 per cent tax on their patient billings.

Yet they will still have to pay VAT on their inputs and, since they are exempt, will be unable to ‘net off’ this off against any tax they might pay on the services they sell.

As a result, like banks and insurance companies, Doctors Hospital and other healthcare providers will likely experience cost increases that will force them to raise patient fees.

Asked by Tribune Business about the likely impact, Mr Rassin replied: “Absolutely I’m very concerned, and not only over the increased costs to us and the patients, but what happens in the second and third year if enforcement is not done properly.”

The Doctors Hospital president explained his concern that those companies who fully paid due VAT to the Government might suffer an ever-increasing tax burden as a result of others who ‘evaded’ the system and suffered no consequence.

“If they [the Government] base their projections on 100 per cent of VAT registrants paying VAT, and they only get 60 per cent paying, those 60 per cent could end up paying higher amounts to make sure they get the numbers they want,” Mr Rassin said.

And, taking a longer-term view, he questioned how the Government would “balance” VAT with Customs duty.

The Government has billed VAT as being ‘revenue neutral’, meaning it would not earn more from this than the existing Customs duty system. Effectively, it has been touted as income replacement.

Yet Mr Rassin questioned whether the Government would cut Customs duties in proportion to the new VAT’s effects, and what “the net impact” would be - both on BISX-listed Doctors Hospital and other businesses.

While this might ensure taxes paid on goods remain the same post-VAT, services - which are relatively untaxed at present - are likely to increase in price as a result of the tax hit.

A publicly-listed company such as Doctors Hospital has to purchase numerous services every year, such as legal and accounting services, and Mr Rassin indicated that he expected a negative answer - that the company’s costs would increase under VAT.

“I believe the cost of healthcare will go up because of the additional tax,” he told Tribune Business. “If costs go up, insurance companies will blame us for it, causing premium prices to go up. Employers will drop healthcare insurance for their employees, and less people can afford private healthcare.”

This illustrates how VAT’s introduction is likely to produce a ‘ripple effect’ throughout the Bahamian economy, increasing prices and the general cost of living.

The Government has argued that its tax reform centrepiece will not produce “dramatic” price increases, but if wages do not match these rises, Bahamians will suffer a drop in living standards - and a likely wealth transfer from households and the private sector to the Government.

Mr Rassin said Doctors Hospital’s finance department had contacted the Government to obtain a better understanding of the proposed VAT tax, but no further information had been forthcoming to-date.