Imagine Dr SMK performs a cesarean section, and as the gynaecologist, for patient named X, and he raises an invoice of KES 1,000 to be paid by insurance ABC. Ideally the doctors’ invoice should be paid as is and in full by insurance ABC. Upon payment, procedurally Insurance ABC will retain 5% of the invoiced amount as withholding tax in line with professional fees guidelines, and send to KRA. The witholding tax provides visibility of this transaction for tax purposes. On filing of tax returns the doctor will then pay the remaining 25% of the paid amount, less expenditure incurred in generating that income.
The payments of doctors’ invoices though have not been as straight forward as this. Many a time there are incidences where third-party payers either do not pay, or only pay the doctor partially, with or without an explanation. This reduction of doctors’ invoice amount, or the non-payment of the same, is never captured in any written document and therefore impossible to prove to the taxman. Therein lies the crux of the matter as pertains uploading an invoice for a service done and invoiced by a doctor that may never be paid for and yet tax is due.
In the example given above, the doctor has done a cesarean section and invoiced KES 1,000. (S)he uploads the KES 1,000 invoice to the ETIMS system. KRA then expects KES 300 as tax or an expense to account for the same amount. There is no place in the KRA ETIMS system to upload an explanation for non-payment since the invoice has already been uploaded and is now considered a taxable INCOME by KRA. Yet it has not been paid and may never be paid. Insurance ABC knows that there is nothing the doctor can do about it. So, the doctor pays KES 300 to KRA from his pocket, effectively taking the role of government of funding the exchequer. He runs into loses, closes his office, lays off all his staff and the suppliers have nowhere to supply gloves etc. My engineering colleague informed me that that is the mechanism by which some engineering firms closed. They invoice, pay tax and do not get paid. The direction can only be one, bankruptcy.
Whereas we understand the intention of the government of using ETIMS for non-VATable professions they must not create a problem for medical personnel who are already literally visible via withholding tax. Additionally withholding tax is submitted on a REAL PAYMENT, and not on an INVOICE that may or may not be paid. Moreover, third party payers have been known to keep doctors’ monies for months and years on end. It is thus not possible to pay tax on an invoice of monies not received, and at a time that the monies have not been paid. And that is where the ETIMS system will have a problem with doctors. Doctors will not onboard a system that is designed to make the doctor a donor to the government.
History is rife with 3rd party payers disappearing with monies they owe doctors. Remember Strategies – it went under with doctors monies. Remember mediplus, the same. The latest one was Resolution Insurance that even the government itself has been unable to recover the monies it sunk with. I will not mention monies owed by NHIF but the principle is the same.
The solution is very simple though. Let KRA have visibility of the RECEIPT i.e. money that has been paid. The document to be loaded to the ETIMS should be the actual payment, not an invoice whose payment may never see the light of day.
The second problem disadvantaging doctors and being misused by 3RD party payers is that the invoice raised by the doctor is immediately filed as an expenditure item of the 3rd payer and therefore expending it from taxation. If the 3rd party does not honor the invoice, or pays the doctor less than was invoiced, then this is a profit on their part. This profit will be at the expense of the doctor and of the taxman.
Finally, the data protection issues need to be addressed extensively because medicine is an extremely confidential profession. If personal data and diagnosis are to be captured in public taxation systems, it could lead to loss of confidence in the profession and a run in with the Kenya Medical Practitioners and Dentists Council that listens to concerns raised against doctors. I would urge KMPDC to investigate this matter and give guidance on the same.
We thus agree with KRA that there is a need to increase the tax-base using methodologies like ETIMS, but this should not disenfranchise those who are already ‘visible’ and paying taxes. An invoice raised by a doctor is not a receipt. In fact, at a recent meeting between Kenya Medical Association & KRA I suggested to KRA to open a division to help doctors collect monies owed by 3rd parties, including NHIF, and insurance companies, so that doctors can pay tax on these monies actually received.
We ask again, what problem is KRA addressing in forcing medics to mandatorily use ETIMS and they are already ‘visible’.