Budgetary recommendations for Bangladesh’s health sector

Due to the devaluation of the taka against the dollar, the cost of capital machinery, such as the ones used for dialysis, has increased significantly in a short time. Photo: TBS

Bangladesh, as a nation, is experiencing great volatility. The economic, geopolitical, and climate challenges we are facing make our policymakers' jobs extremely complex. The health sector is no exception.

According to news reports, consumption of medicines and health services decreased primarily due to consumers' reduced purchasing power caused by higher inflation. The pharmaceutical industry's margin fell for the first time in five years as costs escalated. 

Healthcare companies, heavily reliant on the import of lifesaving formulations, raw materials (such as reagents, chemicals, and consumables), and capital medical instruments (such as operation theatres, X-ray machines, dialysis machines, cath labs, etc.), confront unprecedented challenges in maintaining their regular operations. Current and looming challenges include:

The cost of healthcare is increasing due to unprecedented inflation and the overall shrinkage of the healthcare portion of the budget for individuals.

High cost of doing business (high cost of raw materials due to higher exchange costs, higher cost of capital due to a high-interest rate, and higher cost of utilities and commodities).

The pharmaceutical industry is ready for the post-2026 scenario to address the expiration of benefits ascribed to LDC countries under the WTO TRIPS agreement. To keep the health sector afloat and growing amidst this volatility, the following points should be considered:

Increase the allocation for health in the national budget: With less than 3% of GDP, Bangladesh's national health budget remains one of the lowest in the world. To work towards universal health coverage for all, this budget should be increased from the current Tk38,052 crore to a minimum of Tk50,000 crore immediately. 

Appropriate use of the health budget: Presently, the health sector development receives only one-third of the annual health budget, with the remainder allocated to administrative and other non-developmental expenses. Furthermore, the rate of utilisation of the health development budget also decreased over the years (from 94% in FY12 to 78% in FY22). 

To ensure a robust health system, it's imperative to increase the allocation of the health development budget, as well as improve the quality of spending.

Allow the calculation of "initial depreciation" on capital machines for tax purposes, in addition to normal depreciation. Due to the devaluation of the taka against the dollar, the cost of capital machinery has increased significantly in a short time. We propose to introduce "initial depreciation" in addition to normal tax calculations to maintain the affordability of lifesaving capital machines, which are essential for quality healthcare.

Removal of Advanced Tax (AT) of capital machinery during import: Currently, 5% Advance Income Tax (AIT) and 5% Advance Tax (AT) are applicable while importing capital machinery from abroad. Due to the devaluation of the taka against foreign currencies, the applicable amount of tax has become prohibitive, severely affecting organisations' ability to provide quality healthcare. Under these circumstances, we should reduce the AIT from the current 5% to 2%, and remove the 5% AT.

Reduction of the corporate income tax: The tax rate for private healthcare companies must be slashed from the current 30% to 22.5%. The current 30% income tax rate is burdensome due to the high ongoing inflation that has already made different raw materials such as reagents, chemicals, and disposables extremely expensive, thereby increasing the cost of business significantly. We should reduce corporate income tax for hospitals and diagnostics to 22.5% to sustain essential health services.

Subsidised bank loan facility for private healthcare companies: Since the private health sector does not receive subsidies like public companies, we should set the interest rate on bank loans for private healthcare companies at 7-9% to keep the cost of doing business manageable.

Encourage international accreditation for healthcare companies: International accreditation is pivotal for high-quality healthcare, but it is also a time-consuming and expensive endeavour. Therefore, we should offer a 10% tax rebate to companies that achieve international accreditation.

Removal of VAT on office or space rents for hospitals and diagnostics: Like production and manufacturing facilities in other sectors, healthcare companies should also get an exemption from 15% VAT on space rents for hospitals and diagnostics to encourage entrepreneurial initiatives in the health sector.

Reduction of "delayed" rate for late income tax return submission: The Income Tax Act 2023's proposed 4% "delay" rate for late return submission should wait until the next tax year due to the current high inflation and high business costs.

Separate incentive fund for the health sector: Like the export development fund, which provides loans to export-oriented companies at 4% interest, a separate fund should be created for private health sector companies to encourage their expansion and contribute to health facilities for all.

Here are a few specific budgetary recommendations for the health sector's immediate improvement:

All medical instruments used in healthcare, including capital machines for production and manufacturing units, should be exempt from the current 5% Advance Income Tax (AIT) and 5% Advance Tax (AT).

All medical instruments should be considered capital machines, and the total tax on those needs to be 1% instead of the current 37%. Like capital machines, the total tax on the Operation Theatre (OT) table needs to be 1% instead of the current 31%.

The tax on all types of Operation Theatre (OT) lighting systems should be 1% instead of the current 15%. Instead of the current 5% tax, all types of lifesaving machinery and parts under HS Code 9018.90.90 should only pay 1%.

Like capital machines, the total tax on Patient Monitors needs to be 1% instead of the current 31%. The total tax on mortuaries, blood banks, refrigerators, and freezers should be 1% instead of the current 105%.

The total tax on the modular OT system True Space Modular Wall Panels should be 1% instead of 59%, similar to Sandwich Panels, which are taxable as capital machinery. The tax on all kinds of spare parts for medical instruments must be 5% instead of 37%.

Sketch: TBS

Dr A M Shamim is the Founder and Managing Director of Labaid Group

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.