VAT Challenges for healthcare segment and medical supplies

The Sultanate of Oman under its Health Vision 2050 aims at strengthening its healthcare segment by facilitating paramount healthcare services to the citizens of the country. In the wake of the existing pandemic, it becomes even more important to modernize and equip the health care systems to manage the demand and supply cycle. Medication and preventive healthcare being necessities, the VAT law in Oman is carefully drafted in order to ease the burden of VAT on the common man.  As per the articles of the law, there are two treatments for the segment;

(a) The healthcare services and related goods and services are exempted from VAT, and

(b) The supply of medicines and medical equipment are subject to zero rate.

The Executive Regulations will specify the terms and condition in detail for the applicability of the above relief.

It is interesting to note that despite healthcare institutions and suppliers of medicines falling under the same segment, the VAT treatments are different. Unlike UAE and KSA who have applied zero rate and standard rate on healthcare segment respectively, Oman has taken a distinct approach by exempting the healthcare institutions only. In case a service is exempt from VAT, the respective business has a disadvantage that it cannot claim VAT credit on the purchases made in supplying the exempt service.Further, the law has zero rated medicines and medical equipment. As we know that the majority of the purchases for a health institution will be in the form of medical equipment and medicines, which is zero rated. This will reduce the impact of increase in the cost for the healthcare institution as the major purchases for healthcare institution will be zero rated.

Though healthcare service provider are under exempt category, it is not necessary that every service will be exempted. It is likely that the preventive treatment will be exempt and any elective treatment will be taxed. For instance, if an overweight patient undergoes an emergency surgery for heart complication, then the same will be exempt. Now, if the same patient undergoes liposuction to remove excess fat, then the same will be vatable. The Executive regulation will provide condition and categories for exemption. Hospitals or clinics need to ensure any cosmetic/elective treatment undertaken by a patient is subject to the standard rate of VAT. Similarly, drugs and medicines related to cosmetic/elective treatment will also be vatable at standard rate.

In healthcare industry, there will be many contractual arrangement between the hospitals and specialist doctors for services. The healthcare organisation need to evaluate all the possible business scenarios with regards to applicability of VAT on such arrangements. For instance, hospitals may outsource doctors from other hospitals as visiting specialist on fee basis. In this scenario, the specialist doctor performs his function to treat the patient but his service is received indirectly by the patient and directly by the hospital. Here it become important to evaluate the contract terms to ascertain if the arrangement is manpower supply, which will be subject to standard rate of VAT. Likewise, there will also be service contracts between the hospitals and diagnostic centre and the same needs to be evaluated from VAT perspective.

In the healthcare industry, there are many ancillary services like providing food to patients and attendees and providing additional beds which are likely to be taxed at standard rate as the same is not directly related to the patients care, Whereas ambulance services will be exempt as it constitute a core offering of the healthcare. Although, it can also be argued that ambulance services will fall under passenger transport, still it will be exempt.

For healthcare institutions, it is very important to ensure that correct VAT treatment is applied on their supplies. The industry is going to witness mixed treatment for VAT on the services and hence it is necessary to have an initial VAT impact assessment study done before the VAT spools out in April 2021.