January 18, 2013

A new tax conundrum

The anouncement of a potential increase in VAT rate for health care products that currently are under the reduced tax rate, a shift from 10% to 21%, represents the third step in a dangerous growth spiral for health expenditure. From 2010, VAT rates have grown 3 pp (from 7 to 10% the reduced rate) and 5 pp (from 16 to 21%).  For public health expenditure, these changes represented an increase in 1,1% or 45 m euro. Right now, the new rate could replicate past events. You can check this information in this recent report. I couldn't find a similar one for private sector.
This is a nonsense. The publicly funded hospitals have to pay a VAT that goes to the government for the goods and services they acquire and they can't put a tax on the services they provide. The hospital resources to pay the tax comes from public funds (the citizens taxes). The result is that hospitals need more funds to pay for more taxes that come from the same body that receives them!
Some years ago, hospitals were asking for VAT rate of 0%, and we all know that this is difficult to achieve under EU rules. Surprisingly a "minor" change in legislation last november has allowed the construction industry for VAT rate of 0%. The final buyer has to pay for the standard VAT amount, but those involved in the process don't have to.
Why does the UK have a reduced tax of 5% or tax exemption in health and we can't apply the same? 

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