Algeria, July 3, 2018

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State tax incentives can help improve healthcare sector

The 2010 Constitution guarantees every person the right to highest standard of health care including the right to emergency care and reproductive health. To achieve this, the Government has shown its commitment by increasing allocations to public health expenditure and by operating numerous healthcare facilities in the country.

Despite these and other initiatives, Kenyans are still facing significant challenges especially those with life threating diseases such as cancer which ranks third in the leading causes of death in Kenya.

Investment in equipment and facilities for the healthcare sector requires huge capital outlay and, in an attempt, to equip the existing hospitals, the government has leased specialised healthcare equipment through the medical equipment leasing programme.

This project faced numerous challenges including reallocation of funds by the county governments subsequently to procure other items and later reclassified as specialised equipment, delay in releasing the funds and lack of qualified technicians to operate the equipment among others.

Consequently, the equipment does not serve the intended purpose and there is need for collaboration between the central government, county governments and the private sector in providing affordable healthcare in both public and private hospitals.

For a long time, there has been few if any tax incentives to the healthcare sector, and this has discouraged the private sector from investing in this sector. Additionally, the few who have invested in this sector are likely to pass the huge costs to the patients thus increasing the cost of healthcare.

In an effort to appeal to the private sector, the government exempted from Value Added Tax taxable goods, equipment and apparatus for the direct and exclusive use for construction of specialised hospitals in 2016.

However, there is need to define a specialised hospital and provide clarity on hospitals that qualify for the exemption.

This will encourage potential investors to invest in the healthcare sector especially in the planning phase. Peculiarly, the Tax Amendment Bill tabled in Parliament in April this year seeks to reclassify all medicaments from zero-rated to exempt status hence increasing the cost of drugs because the manufacturer will no longer be entitled to claim VAT refund on purchases.

The recently released Income Tax Bill, 2018 proposes to grant hospitals a 100 percent investment allowance on costs of construction of hospital facilities and on purchase of hospital equipment.

Therefore, once the Bill is enacted, the investment allowances are likely to motivate the private sector to invest in the health care sector since they will be allowed to claim back the cost of construction and equipping the hospital.

This begs the question, on whether the existing tax incentives are sufficient to lure investors in this sector.

In my opinion, these incentives are good though not sufficient hence, the government needs introduce additional incentives such as income tax exemption for the first ten years for privately owned hospitals and clinics on condition that they offer affordable healthcare.

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