With Budget 2023, the total expenditure on health services in Malaysia has been described as equivalent to neighbouring countries
BUDGET 2023 saw an allocation of RM36.14 billion for the Ministry of Health (MoH) under Budget 2023, a significant increase of 11.5 per cent from RM32.41 billion allocated in Budget 2022.
Overall, the MoH’s budget for 2023 will focus on strengthening health and wellness programmes, improving and repairing healthcare facilities, increasing the effectiveness of health treatments, replacing critical and old medical assets and digitalising health care services.
Malaysia has in the past been allocating about 2.59 per cent of GDP for public health expenditure, thus causing many patients to complain of the long wait to get services such as magnetic resonance imaging (MRI) or computed tomography (CT) scans in government hospitals
According to The World Bank’s data on Jan 30, 2022, Malaysia’s 2019 health expenditure stood at 3.83 per cent of GDP. Neighboring countries such as Singapore and Thailand’s 2019 health expenditure were indicated at 4.08 per cent and 3.79 per cent of GDP respectively, while Indonesia’s figure was reported at 2.9 per cent of GDP.
The general consensus is that the benchmark for public health expenditure for an upper middle-income country is between four per cent and five per cent of GDP.
With the allocation in Budget 2023, the total expenditure on health services in Malaysia has been described as being equivalent to neighbouring countries, which is around four per cent of GDP.
The increase in the country’s public health expenditure would among other benefits, enable private hospitals to work closely with the public sector to promote good health, and contribute to preventive health measures. A huge burden to the government healthcare sector is currently managed by private hospitals, as the latter manages patients who have financial resources to seek private healthcare services.
The government is committed to improving the healthcare services in rural areas, such as acquiring mobile CT Scan equipment to improve CT Scan services, especially for the benefit of the interior areas in Sabah and Sarawak.
As for mental health, the government plans to establish a National Mental Health Centre of Excellence that acts as an integrated driving force between all parties for the well-being of the people’s mental health under MyMYNDA with an allocation of RM34 million.
With regard to tax measures, there are a number of tax incentives that have been announced in Budget 2023. There is an additional relief for dental examination and treatment expenses for the individual, spouse and child of RM1,000, which is part of the RM8,0000 medical expenses relief available for resident individuals effective form the year of assessment 2023.
Companies that provide healthcare services are eligible for income tax exemption equivalent to 100 per cent of the increased value in export of healthcare services to foreign healthcare travelers or can claim Investment Tax Allowance at the rate of 100 per cent of qualifying expenditure, subject to certain conditions. The claim for these incentives has been extended to Dec 31, 2025 to further encourage private healthcare services and position Malaysia as a health tourism hub.
The government also plans to exempt import duty and sales tax on nicotine replacement therapy products to encourage smokers to quit the habit.
The Budget Speech announced that charitable hospitals registered as Companies Limited By Guarantee would be given income tax exemption equivalent to the amount of expenses incurred for charitable purposes. The donors would be given a tax deduction equal to 10 per cent (of the aggregate income).
“Not-For-Profit” charitable hospitals have been granted income tax exemption for a long time, enabling them to sustain operations and improve and expand facilities and services in tandem with the ever-increasing needs for healthcare for an increasing population.
However, due to a technicality in the law, the Lembaga Hasil Dalam Negeri (LHDN) has been withdrawing the income tax exemption granted and imposing back-dated taxes going as far back as 2015/2016 essentially on the basis that these hospitals operate on a fee -paying model ie not relying on donations alone. And since they generate “surpluses” i.e. have a “profit seeking” element, they do not qualify for the exemption.
Tax exemption for charitable hospitals
In reality, the hospital operations cannot depend on donations alone and they must strive to operate with positive cashflows to remain sustainable and ideally achieve surpluses for reserves, upgrading and expansion. The charitable hospitals operate on a “Reduced-Fee-Model” to provide affordable below market pricing hospital service to the Rakyat and serve as a bridge between government hospitals and the private hospitals.
These charitable hospitals also have welfare units that provide financial assistance to those who are genuinely not able to meet the hospital bills despite the reduced fees charged. These hospitals also run free and mobile clinics as part of their out-reach programme to the outlying and rural areas.
These hospitals have been operating either as a company limited by guarantee (i.e. no shareholders) or as associations under the Registrar of Society (ROS). Any operational surpluses are retained by the hospitals and utilised for the benefit of the hospital in facility upgrades and hospital equipment to render up-to-date hospital treatments. There are no shareholders and no dividends are declared nor are any surpluses distributed to the owners / founders / members.
Collectively they serve over an estimated two million patients annually who otherwise may seek treatment from government hospitals which will burden the public healthcare system and services.
The tax exemption announced for the charitable hospitals is welcome as it will help reduce their costs and enable them to continue providing affordable health treatment, but the technical details of the tax exemption will have to be studied in due course.
Firstly, the exemption should not be only to hospitals that are formed as a company limited by guarantee but also associations that are registered under the ROS. Secondly, it should cover all surpluses made by the charitable hospitals as there are no dividends or benefits paid to any shareholders or members and the surpluses are ploughed back to improve the facilities of the hospitals or to fund the operations.
The High Court judgement of 2011 in the case “Syarikat Pendidikan Staffield Berhad v Ketua Pengarah Hasil Dalam Negeri” has relevance to these charitable hospitals.
Briefly, the issue was whether a charitable educational institution formed to run a residential school for profit is eligible to apply for tax exemption on grounds of being a charitable institution, limited by guarantee and any surpluses from its educational operations cannot be distributed to its members as profit.
The Court observed that non-profit organisations can engage in any business enterprise in the fulfillment of their mission objective without affecting their tax-exempt status. They are free to do anything a for-profit company might do in pursuit of their goals including making profit.
The real concern is whether any portion of the profit received by the organisation is permitted to inure to the benefit of any private individual engaged in managing the organisation. – The Health
Harvindar Singh is a Tax Consultant and Council Member of the Chartered Tax Institute of Malaysia
Funds allocated to the health sector
- Total of RM36.1 billion allocated for the Health Ministry.
- RM11 million for subsidies for mammograms and cervical cancer screening.
- RM20 million to promote Malaysia as a medical tourism destination.
- RM4.9 billion for public healthcare.
- RM420 million to repair dilapidated hospitals and clinics.
- RM1.8 billion to build new health facilities and procure medical equipment.
- RM10 million to purchase 3D printing machines for dental health services.
- Allocations to treat rare diseases increased to RM25 million.
- RM80 million for Socso health screening programme.
- RM15 million for Agenda Nasional Malaysia Sihat programme to encourage healthier lifestyles.
- RM80 million for the PEKA B40 programme.
- Import duty and sales tax exemptions for nicotine replacement therapy products