Friday 29 Mar 2024
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KUALA LUMPUR: Traditional Chinese medicine (TCM) is about to get more expensive.

Its practitioners are estimating that owing to the 6% goods and services tax (GST), coupled with the costs of compliance with the new tax system and a weakening ringgit which has made imported Chinese herbs more expensive, TCM prices are expected to increase by about 20% to 30% post-GST.

Federation of Chinese Physicians and Medicine Dealers Associations of Malaysia adviser Professor Dr Lee Kong Hung sees the potential price increase affecting small-scale, family-owned TCM retailers in rural areas.

“They are concerned that a price increase would prevent people from seeking TCM and send them off to seek medical attention at private clinics or pharmacies, given that 359 generic drugs will be exempted from GST,” he told The Edge Financial Daily in an interview. 

“Indeed, their concerns on the GST consequences have led to about 30% of the TCM operations in the country, many of which are family-run, considering winding  up their businesses,” he said.

Currently, the TCM consultation fee ranges between RM10 and RM40 per session.

Lee pointed out that as all herbal medicine as well as medical supplies such as acupuncture needles and traditional Chinese cupping sets will be subject to GST, TCM retailers whose revenue are less than RM500,000 a year and not registered will have to pass on their costs to the consumers, making them less competitive.

“Most of these TCM businesses in rural areas are run by a husband/wife team, and they are not required to register under the GST legislation (and thus, not entitled to claim input tax on the supply or importation of goods). As such, they are likely to pass on their GST costs to the consumers.

“At the same time, the registered TCM retailers will need to employ more staff to maintain the systems and processes to monitor GST collection and payment which could result in their overall costs increasing by 10% to 15%,” he said, noting that there are about 6,000 TCM retailers in the country.

Lee also highlighted the survival of the traditional medicine cottage industry or small-scale TCM producers post-GST, who are already spending between RM1 million and RM2 million to enhance their manufacturing facilities for medicines to comply with the good manufacturing practices (GMP) standards.

“The weak ringgit has also resulted in higher costs of raw materials, which are mostly imported. This poses problems of sustainability [for small-scale TCM producers]),” he said.

Lee said since the enforcement of GMP, about 90% of the 300 cottage industry players have announced the closure of their manufacturing operations due to unsustainability.

“This had led to a situation where only the big factories survive and they would have a final say on pricing, which would affect TCM users,” he said.

On its part, Lee, whose federation represents about 12,000 therapists, pharmacists and acupuncturists together with other groups involved in traditional medicine and supplementary health such as Gabungan Pertubuhan Pengamal Perubatan Tradisional Melayu Malaysia, has sent a petition to the government to declare all traditional medicine and related items and services as zero-rated from GST.

Singapore-listed TCM company Eu Yan Sang International Ltd, meanwhile, does not expect any major impact on its business post-GST.

“The GST charged by our suppliers is claimable as we are also GST-registered. Still, GST is not the only factor in our costing, and our costs of goods sold and operating expenses may increase due to factors other than GST such as the recent depreciation of the ringgit, and inflation.

“The extent of this increase in costs is still manageable in our opinion,” Eu Yan Sang Malaysia managing director Eric Chiu told The Edge Financial Daily.

Chiu assured that the company will not pass on the increase in cost from GST to the consumers even though it has invested significant time and effort in the customisation and programming of its enterprise resource planning systems to be GST-compliant.

‘It is our promise to provide quality TCM to customers at a reasonable price, and we always monitor the prevailing market price in the TCM industry to ensure our products are competitively priced,” Chiu said in an email interview.

For its first financial quarter ended Sept 30, 2014 (1QFY15), Eu Yan Sang International posted a revenue of S$83.03 million (RM221.78 million), a 4% increase from S$79.54 million a year ago, mainly due to increased contribution from its retail and wholesale segments.

The clinic segment’s contribution to the group’s revenue in 1QFY15 was S$4.36 million or 5.25% of the total, which is expected to decline post-GST.

That’s because the services provided by Eu Yan Sang International’s clinics are standard-rated and subject to 6% GST. In addition, any registered person is not allowed to claim back the GST charged by Eu Yan Sang TCM clinics because medical expenses are treated as blocked input tax.

“As a result, it is possible that some companies may encourage their staff to go to private clinics instead of TCM clinics as they cannot claim back the GST charged by TCM clinics,” said Chiu.

‘In view of this possibly negative perception about TCM clinics charging GST, we believe the various health benefits offered by TCM are still widely recognised by the public, and we are confident that TCM is irreplaceable in the medicine industry. Hence, EYS (Eu Yang Sang) TCM clinics will continue providing quality TCM to overcome the potential [consequences] of GST,” he added.

 

This article first appeared in The Edge Financial Daily, on March 9, 2015.

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