Monday January 30, 2023

An ailing economy

January 25, 2023

LAHORE: Healthcare has emerged as a large component of household expenses, not because the ailments have increased or the rates of medicines have skyrocketed but because the hospital, clinic tests and doctors fee are touching the roof.

About five years back, the Institute of Chartered Accountants of Pakistan after a study concluded that medicines account for 15 percent of the total cost of an average patient, 30 percent cost goes to clinical laboratories and remaining 55 cost of treatment pertains to doctors fee or hospital charges.

We concede to the argument that doctors are professional and they charge according to their expertise and reputation (just like brands) and hospitals are commercial entities and free to charge for the services as they do not force the patient to come to them.

But clinical laboratories, doctors and hospitals cannot be allowed to take the entire loot home. They have tax liabilities.

Taxes they pay do not match the income they accumulate from patients. They ought to pay actual taxes.

High respect commanded by some service sectors like doctors, engineers, architects and lawyers is the main reason for the absence of political will of provincial governments to document this sector that deprives it of hundreds of billions in revenues.

All of them fall under the services sector, except for the telecom sector (that is fully documented and its money trail is traceable). The services sector gets away by paying nominal taxes.

If we look at the records of the Federal Board of Revenue (FBR), then most of the doctors, hospitals and clinics are registered taxpayers. These services mostly fall under provincial domain and also account for half of the non-documented economy.

Provinces can earn much more by bringing these professionals under the tax net. Many of these professionals do file yearly income tax returns, but in majority of the cases, the real income is concealed.

Apart from the federal government that loses income tax revenue, the major losers are the provinces that have the right to collect the general sales tax.

Tax evasion is very high. To start with, let us roughly guess the gross income of a heart surgeon who performs at least two heart surgeries daily (the famous ones always do). They charge Rs300,000 or more per operation. They examine at least 20 patients a day at their private clinic charging Rs3,500 per patient.

This means in a single working day their gross income is Rs670,000. In 300 working days of the year, the gross income of the surgeon comes to Rs200 million.

Even if 20 percent clinic expenses are deducted the gross income comes to Rs160 million. That heart surgeon ought to pay at least Rs5 million.

There would be hardly any doctor who pays even one million as income tax. There may be over 100 high earning heart surgeons in the country.

Then there are thousands of doctors earning 75 percent, 50 percent or 25 percent of this amount. There are orthopedic surgeons that perform 4-5 or even more operations a day charging from Rs10,000 to Rs50,000. There are general surgeons, gynecologists, child specialists, ear, nose and throat specialists and scores of other medical experts whose income is visible if one visits their private clinics. Doctors have the right to earn but it is their duty to pay taxes to earn real respect.

Private hospitals are charging a fortune as service charges. The cost of room rent in numerous hospitals is higher than the treatment charges.

These hospitals are not only concealing their income but also assist the consultant doctors attached with them to pay their consultancy charges in cash to avoid documentation. All this is going on openly without fear of authorities.

On each Rs100 worth of tests, the laboratories earn at least Rs50 but do not declare the actual amount in their documents. Medical charges have continued to multiply even when medical related professions do not pay actual tax.

The government has to come up with a mechanism to catch these tax evaders.