Admittedly, municipalities have received a 5% deferred VAT refund from the state for private VAT-free social and health services and the purchase of closely related support services, such as catering, since 2002.However, the competitive disadvantages will not disappear completely if the imputed refund does not fully cover the costs of latent VAT.
On average, 8 percent of turnover
A 5% refund of hidden VAT on social and health services under the VAT Act may not be in line with today’s situation. The estimate is from the beginning of the 21st century, but the real share of latent VAT in the turnover of private service providers may have changed due to the increase in VAT rates, the capitalization of operations and the increase in business premises costs.
The amount and importance of hidden VAT naturally varies in different sectors of social and health services. It is affected by where and in which premises the companies operate and how they have outsourced their support functions. Annual expenses may include tax-free purchases. In some purchases, the tax rate is also lower than the general VAT rate of 24%.
- According to studies commissioned by the Confederation of industries, latent VAT accounted for an average of 8% of the turnover of social and health care companies in 2015.
- There is a much higher-than-average latent VAT in industries that require a lot of materials and supplies, as well as capital goods, such as medical practice and dentistry.
- The importance of hidden VAT in social services is less than in health services. The VAT Act also equates early childhood education, ie childcare, with social services.
- The importance of hidden VAT is, on average, lower in social and health organizations than in companies, as the activities of the organizations focus on housing and outpatient social services.
The growing importance of latent VAT
In monetary terms, the latent VAT included in the production of social and health care enterprises was estimated at EUR 460 million in 2019. With small business tax rate this is important.
If organizations’ imputed share of hidden VAT on private social and health services is included, the amount of imputed hidden VAT on all private activities rises to an estimated € 580 million.
- The amount of hidden VAT and the share of turnover have increased in 20019–20, especially in private companies in the health care sector. The increase in volume is partly the result of the rapid growth of private activity, which did not stop even during the economic downturn.
- The importance of latent VAT on the part of organizations has diminished with the contraction of organization-based activities.
The treatment of latent VAT is unclear in war
For the time being, the reform of social and health care has left open the question of how to reimburse provincial service providers for VAT on purchases related to their service production and how to ensure competitive neutrality in VAT-free sote services between private and provincial service providers.