Medical Tourism in Developing Countries

Inequalities in Health Care ● 181to understanding the arguments for and against linking medical tourism topublic health improvements.Tax RevenueIn many developing countries, tourism plays a crucial economic role andhas a large potential in public sector finance. 40 Indeed, through taxation,developing countries’ governments can benefit from the lucrative touristindustry by increasing their revenue, as the UNWTO clearly pointed out. 41The potential of medical tourism is even greater since the prices of tradedservices are higher and the price elasticity of demand is lower.Tax income is generated by medical and nonmedical tourism becauserelated businesses and individuals are subject to direct taxation, like in anyother economic activity. Direct financial benefit to the government comesfrom three types of taxes. Business taxes are those imposed on private sectorentities such as hospitals, clinics, and rehabilitation facilities, as well asaccommodations, gas stations, and airports (these are easy to tax since theyare highly visible and usually well regulated). Consumer taxes include thesales tax imposed on each transaction involving goods and services. Incometaxes are paid by the population employed in the medical and nonmedicaltourist sector. Together, these three types of taxes account for most revenueearned by governments.In addition to the above direct forms of taxation, governments alsobenefit indirectly as medical tourism develops and the concomitantincreased economic activity diffuses throughout the economy and providesnew sources for taxation. Moreover, increased private economic activitymight stimulate the domestic production of goods that otherwise mighthave to be provided by the public sector, leaving more revenue for otherexpenditures. Also, foreign visitors pay indirect taxes on goods and servicesthey consume. They also pay customs duties, which in some places are thegreatest source of revenue (in the Bahamas, for example, authorities collectmost of their tourist revenues through import duties). Finally, many countrieshave introduced taxes aimed specifically at the tourist sector (for example,in Tunisia, a 1 percent tax is imposed on hotel revenues 42 ).In promoting medical tourism, governments can provide tax incentivesto steer investment in a particular direction. Funding subsidies and grantsand giving tax relief can promote supply in a targeted sector. 43 For example,in an effort to develop a cardiology center where one previously didn’t exist,authorities might make capital inputs free from importation sales tax.Alternatively, they might allow the losses incurred during the first year or