The Star reported that consultancy fees of doctors who rent space at private hospitals  would  be  charged  the  6%  Goods  and  Services  Tax  (GST). According  to  Customs  Department  GST  Director  Datuk  Subromaniam Tholasy, doctors employed by private hospitals will be exempted but private consultants  renting  space  in  hospital  would  be  subject  to  GST  as  these consultants do not come under the payroll of the private hospital.

Comment: We are not surprised with the decision of imposing GST charges on consultants renting space in private hospitals as the decision has been expected  for  quite  some  time.  We  understand  that  the  majority  of consultants  in  private  hospitals  are  not  employed  by  the  hospitals  but instead work with the hospitals under a profit sharing basis.

We  believe  that  a  6%  increase  in  consultancy  fee  would  not  deter  the majority  of  customers  from  seeking  services  from  private  hospitals,  in  the long run. Although we do foresee a slight impact on the healthcare sector in the short term, we believe that business will eventually normalize especially for KPJ whose customers are mainly from the middle income group. As this impact has already being factored into our forecast, we keep our earnings projection unchanged for both KPJ and IHH. Our top pick remains IHH with a TP of RM6.03

Source: Affin Hwang Capital Research - 23 Mar 2015