MANILA — Starting Nov.1 Guamanians coming to Manila will face higher medical costs.
Most medical procedures will still receive tax exemptions but value added tax on goods and services are expected to increase overall costs.
The increase is due to the implementation of the expanded value added tax or E-VAT law upheld by the Supreme Court of the Philippines on Oct. 18 a move proving unpopular with the majority of the population.
The VAT basically a sales tax is imposed on the end-consumer in payment of goods and services. The rate has remained at 10% since the first VAT law was put into place in the late ‘80’s.
Under the E-VAT about 27 items and services previously exempted — including professional fees of doctors and lawyers and power rates — are now covered. The new law also raises corporate income tax to 35% for three years from the current 32% but returns the rate to 30% thereafter. It also gives the president of the Philippines the power to raise the sales tax to 12% in 2006.
Doctors and hospital administrators said this means professional fees of doctors —such as consultation fees surgical fees and specialist fees — will automatically rise by 10%. Also hospital fees will likely increase by yearend due to the higher costs of power and medical supplies.
In an interview with the Journal Modesto O. Llamas a vascular surgeon at the Chinese General Hospital and president of the Philippine Medical Association said “With the implementation of E-VAT doctors will now start collecting it from patients.” The PMA is an organization of doctors surgeons and other medical professionals nationwide and has 50 000 members of which some 28 000 are active.
A typical consultation fee with a Philippine doctor ranges between 300 and 500 pesos ($5.40 and $9) and a surgeon’s fee for an operation costs about 30 000 pesos ($540). With VAT of 10% consultation fees will rise to between 330 and 550 pesos ($5.92 and roughly $10) and the surgeon’s fee to 33 000 pesos ($593).
The Bureau of Internal Revenue the tax collection agency of the Philippine government said however the exemption for medical services will remain.
As such there will be a little impact on the cost of medical treatments per se according to Kim S. Jacinto-Henares deputy commissioner of the bureau. “If you don’t have professional fees included (medical costs) should not (go up).”
Medical services exempted from VAT include room rates laboratory exams done in the hospital and operating room fees. “If you have an EKG X-ray blood test in the hospital … those are not covered by VAT.”
However while doctor’s fees are covered by the sales tax residents or doctors in training at the hospital are not.
“If you go to the E.R. [emergency room] interns residents and nurses are employees of the hospital. There is no VAT (on their services).” Henares recognizes that foreigners seeking treatment in the Philippines will likely go to specialists such as cardiologists nephrologists neurologists etc. who are all covered by VAT.
But doctors and hospital administrators aren’t convinced by the government’s claim that the VAT hike won’t raise the cost of medical treatments overall.
“Right now maybe [the hospitals won’t raise rates]. But once all the materials all things will go up then they have to adjust. All of those [room rates laboratory test fees operating room fees] will have to adjust. Everything will be affected ” Llamas said.
Joel Beltran is administrator of the Asian Hospital in Alabang Muntinlupa the enclave of Manila’s new rich. He told the Journal that the hospital is already considering raising its rates and fees by 2006 due to higher inflation depreciation of the peso against the greenback and the need to increase the wages of its employees.
“We’re in the stages of finalizing increases — not just because of VAT but also because of inflation.” Beltran said Asian Hospital had projected an increase before the VAT announcement to cover a 5% to 7% rise in goods a currency adjustment of 2% and an increase in employee salaries.
“That’s already an increase in our (rates) of 7% to 10%. Our finance people are now making their computations on (VAT’s) impact ” he said.
Hospital receipts meanwhile will reflect the VAT charges of surgeons and other specialists. Beltran said at Asian Hospital a patient’s bill segregates hospital charges and doctors’ fees. The doctors’ bill will show the 10% VAT charged the patients.
VAT will certainly raise power rates Beltran said and further increase the cost of materials. “We may have to look at power-saving measures.”
Asian Hospital is one of four major medical facilities in Metro Manila that treat many patients from Guam and the Pacific islands. Others include St. Luke’s Medical Center in Quezon City Makati Medical Center in Makati and Medical City in Pasig City.
The Philippine government maintains that the impact of the sales tax will be minimal on fuel prices and power rates. It predicts a 2.5% rise in gasoline prices while the Manila Electric Co. a private power distributor in Metro Manila said electricity bills would increase by only 60 centavos (one cent) per kilowatt hour. Overall inflation rate according to its finance department will only be 8% to 8.5% in 2006 with the E-VAT against this year’s projected 7.5% to 7.9%.
But Jacinto-Henares said doctors and hospitals could avoid automatically passing on sales tax to patients.
“The advantage of the VAT system is if you’re not the end-consumer and you use the product (or service) as an input in your business you can use whatever value-added tax you pay as credit against the output tax.”
Rent medicines and supplies all attract the tax but can be entered as a tax credit if they are not passed on at the discretion of the doctor.
Doctors who are covered by VAT are those earning above 1.5 million pesos (about $30 000) a year. Those earning less will be subject to a 3% tax and can only charge their patients a 3% VAT. “The only difference is he can’t credit his input VAT (to his output VAT) ” she said.
The VAT credit/refund process is painstaking as it involves retention of receipts and computations with VAT to be remitted to the government every month and as such only hospitals are likely to credit input VAT against output VAT. According to a Bureau of Internal Revenue handbook there are at least eight major requirements and even more sub-requirements for the application of VAT credits/refunds.
Llamas told the Journal according to his feedback “The consensus of the majority is to charge the additional 10% to the patients.” He said doctors would make exceptions for poor and needy patients. About 80% of the Philippine population live below the poverty line and will bear the brunt of the E-VAT. “Those who can’t afford (medical treatment) we will charge less. If they can’t afford it we’ll just have to accept a thank you ” he said.
Despite the higher cost of hospital treatment and professional fees Philippine doctors stress it will still be cheaper for Guamanians and Pacific islanders to get treated in the Philippines rather than the U.S. “It is still less expensive for them to get treated here than going to the mainland ” Beltran said.
Llamas said “We can assure them of good health care at reasonable prices especially for those in Guam.”
VAT was first introduced in the late ‘80s under the administration of President Corazon Aquino as a way to immediately raise money for the government whose coffers had been plundered by the dictator Ferdinand Marcos. Coverage of the sales tax was first expanded in the early ‘90s under the regime of President Fidel V. Ramos Aquino’s successor.
The cash-strapped Arroyo government estimates the new E-VAT will raise annually some 5 billion pesos ($90 million). Government budget deficits have widened as less taxes are collected owing to lower import tariffs and massive graft and corruption.
Congressmen in the opposition party have already filed a bill to repeal the E-VAT which ironically was passed by this year’s House of Representatives the lower chamber of the Philippine Congress. The congressmen claim that the government is unduly burdening an already “overburdened” and “over-taxed” population which has to grapple with the continued rise in oil and consumer prices. Some administration lawmakers said they would file a bill to enable the president to suspend the law’s implementation.
The Arroyo government said in a Oct. 19 statement that “the bitter pill has to be swallowed now” to enable it to shore up finances and continue implementing programs and services. Opposition lawmakers said the Arroyo government should have explored other ways to raise its revenues such as chasing tax evaders reducing budgetary outlay for debt payments and eliminating graft and corruption before expanding VAT coverage. MBJ