ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

A Study on the Repeal of VAT Exemption for Cosmetic Surgeries

  • Kyu Eon JUNG Korea University

Asian Tax Journal Vol. 11 No. 2 (2010), pp. 239-263

Abstract

Recently, Korean Government announced the Tax Reform Plan of 2009, which included the repeal of VAT exemption for plastic surgery for cosmetic purpose. This paper reviews and evaluates the plan of repeal of VAT exemption for cosmetic surgeries based on the related theories and practices. The conclusions of this paper are as follows. First, the issues of the cases of European Court of Justice, which limit the scope of the VAT exemption for medical care to only curing diseases or health disorder, are "examinations and diagnoses that do not have the purpose of curing diseases or health disorders". If cosmetic surgeries have curing effect including psychological aspect, the surgeries may fall within the scope of the exemption. Thus, the plan of repeal of VAT exemption for cosmetic surgery based on the decisions of ECJ has little validity. Second, in many cases, it is hard to identify the absence of curing effect on cosmetic surgery because most of cosmetic surgeries have psychological curing effect. Third, since a lot of general surgeons, dentists, herbal doctors and dermatologists provide cosmetic surgery, if VAT is taxed only on the provision of cosmetic surgery by plastic surgeon specialist based on the Tax Reform Plan, there will be unfair competition caused by the 10% VAT. Forth, if cosmetic surgeries will be taxed from July 1, 2010, based on the Plan, plastic surgeons and hospitals become taxable entrepreneurs on July 1, 2010, and they can claim refund of the VAT on the used buildings and medical instruments based on the VAT Act article 17⑥. Contrary to the legislative purpose, this refund cause bad effect on the national finance. Fifth, if cosmetic surgeries will be taxed based on the Plan, plastic surgeons and hospitals become taxable entrepreneurs who also provide VAT exempted medical services. An entrepreneur who provides not only taxable but also non－taxable services is confronted with various complex VAT problems including allocation of deductable input tax amount when commonly used goods and services are purchased, adjustments of deductable input tax amount when the ratio of taxable services are changed more than 5%, and calculation of output tax amount when commonly used goods are sold. These complex VAT problems cause costs to doctors and hospitals, which will be shifted to consumers eventually. Therefore, the plan of repeal of VAT exemption for cosmetic surgeries should be reconsidered.

Keywords

  • medical service
  • medical care
  • cosmetic surgery
  • VAT exemption

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