Khamis, 7 November 2013

Health Minister Datuk Dr S Subramaniam is either ignorant or lying to claim that healthcare costs will not be impacted by the implementation of the Goods and Services Tax (GST)

Media statemetnt by Tony Pua, DAP National Publicity Secretary and Member of Parliament for Petaling Jaya Utara on Wednesday, 6 November 2013 in Kuala Lumpur

The media has reported on Monday that Health Minister Datuk Seri Dr S. Subramaniam assured Malaysians that healthcare costs will not be impacted when the Goods and Services Tax (GST) is implemented in 2015.

He said this was because healthcare was GST-exempt in general and that the ministry would be carrying out an in-depth  study on the GST structure and issue a detailed list of services and health products that are exempted from the GST for public consumption.  He then urged all quarters "not to make speculation on this to avoid confusing the people".

It is Datuk Dr Subramaniam who should stop making misleading remarks "to avoid confusing the people", and not otherwise.  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.
The government's GST website ( has explained "GST-exempt supplies" very clearly via the illustration below:
[image attached]

In essence, a GST-exempt product or service only means that no GST will be imposed by the provider to the consumer.  However, provider of these products and services such as hospitals will still be required to pay GST for 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% profit margin.  After the implementation of the GST, the hospital will have to pay the medical supplier RM50 plus 6% 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% profit margin.  Datuk Dr Subramaniam must be day-dreaming to believe that Malaysian hospitals will be so 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, and suffering a severe squeeze in profitability.

The question isn't about whether the prices of healthcare products and services will increase, it is 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% increase in healthcare cost to the consumer.

However, most hospitals as well as businesses would price their products and services based on a profit margin on their cost.  In the above example, the margin is 10%.  If the hospital intends to maintain the 10% margin, then they will charge the patient RM53 plus a  10% markup or RM5.30.  The final price payable by the customer will hence be RM58.30.  Compared to the RM55, this will still mean a full increase of 6% to the end-user or equivalent to the GST charge.

Finally, 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 will be an increase of 7.3% in price compared to the pre-GST price.  It is a practical impossibility for the Government to control post-GST prices of goods and services in hospitals just as there is no way of controlling the varying 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.

Pakatan Rakyat will continue to oppose the implementation of the GST based on the fact that the BN government has not been able to plug billions of ringgit in leakages, stop corruption and end cronyism in its administration.  Worse, the BN has chosen to impose the GST at a time when more than 80% 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.

Tony Pua

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