Insurance companies have run “afoul” of the value-added tax (VAT) act by not remitting VAT on health insurance services to the government, but claiming it as an input and having the Department of Inland Revenue return it to them, Prime Minister and Minister of Finance Philip Davis said yesterday, adding that the government is now changing this practice by the insurance industry, which he said used their own interpretation of the law.
He added, while addressing the matter in the House of Assembly, that although insurance companies are warning the public that this change will cause their health costs to increase, the government does not want to increase costs to consumers.
“We would do anything to avoid causing further costs to the consumer,” said Davis.
Shadow Minister for Finance Kwasi Thompson raised the matter in the House of Assembly, hoping to get an understanding of why the government has chosen to move the insurance industry in this direction.
Davis explained that the government consulted the insurance industry, and that industry agreed that the VAT needs to be paid.
“It was discovered that the insurers were not paying (the VAT) when doctors provide service to patients,” said Davis.
“They were not paying VAT for that service. Now the way the law is constructed, it [health services] attracts VAT and they were not paying it. They would tell you that they have accepted that VAT should have been paid. Well the government decided that they would forgo it [the non-payment] and let’s revisit and see how it could be implemented and they have agreed. And what they’re saying is they didn’t want it to come on right away, so they asked us in writing to not put it on… We were suggesting in September some time, they asked us to put it off for the end of the year, which has passed.
“And they also asked us to put it further to April. That has been done.”
Davis said the implementation of the VAT remittance is moving forward in April, and explained that the insurance companies view it as an additional cost.
The insurance companies have decided that that VAT cost will be paid directly by the consumer, given that the government will no longer allow them to receive that VAT refund as an input.
“And so we are implementing it. And yes, they see it as an additional cost for them. And yes, we’re taking into account the complaint that there are additional costs, but the law is the law and so the conversation’s continuing,” said Davis.
He added that the cost of the VAT should have been factored into the premium by the insurance companies, so that it “would not be an additional cost to the consumer”.
“Now we hear the argument because they are now saying that that risk factor was not factored into the premium,” Davis said.
“All costs in business are passed on to consumers, we appreciate that, that is part of what is being taken into consideration in our discussions with the insurance companies.
“And there is a difference as well in whether the person is insured as an individual… or if there’s a group insurance. Those are factors that you have to take into account.”
