2.

0 Literature Review

2.1 Type of Incentives in Malaysia, South Korea and Taiwan

Malaysia

In Malaysia, the government has introduced increased export incentives for residents who
engage in exporting private healthcare services to foreign clients, whether from Malaysia or
within the country. The resident person would be 100% exempted from tax on the value of
the increased in export. The exempted amount would be deducted from 70% of the statutory
income derived from the business operations of private healthcare services. Moreover, the
government also provided tax incentive to private healthcare services to new companies and
existing companies that involved in expansion, modernization or refurbishment. This
exemption is given on income equivalent to Investment Tax Allowance of 100% of qualifying
capital expenditure for 5 years according to the 2015 Budget speech
(PricewaterhouseCoopers, 2022). Besides that, the government has provided double tax
exemption to the hospital and healthcare institution that have obtained Joint Commission
International (JCI) accreditation as a motivation (Chandran et al., 2017). Joint Commission
International (JCI) is an independent and non-profit organization of United States that
measures and accredit healthcare organization; whereas JCI accreditation is a gold standard in
global healthcare, and it is an indirect tax incentive. If a healthcare organization received the
accreditation, it can prove that it has committed to provide high-quality healthcare services
and ensure the highest standards of patient safety and care. Thus, healthcare organizations
need to perform medical tourism initiatives to be eligible for application of double exemption
from the government.

South Korea

In South Korea, there is a value added tax (VAT) levied at a rate of 10% on the supply of
goods and services to all foreigners. However, for the international patient who had
undergone a cosmetic surgery within the country, the individual is subjected to receive a
Cosmetic Surgery Value Added Tax (VAT) Refund of 10% on their medical expenses from
April 2016 onwards. To apply for the VAT refund, the individual shall submit the certificate
of provision of medical services within three months from the date the individual is provided
with medical services (Cosmetic Surgery Tax Refund, n.d.). Apart from VAT refund for
cosmetic surgery, there is a VAT refund on the accommodation services by a foreign tourist
as stated under the Act on Restriction on Special Cases Concerning Taxation. When a foreign
tourist was offered with an accommodation service for a duration of at least two days but less
than thirty days at a tourist hotel registered under Tourism Promotion Act. In order to
improve the quality of medical supplies in South Korea, the government announced a tax
credit for Investment in Facilities to Improve Quality Control of Medical Supplies. A
corporate is entitled to deduct 1/100 of the amount invested from their income tax if they had
invented in the facilities to improve the quality control of medical supplies. In case of a
middle-standing enterprise, the deductible ratio is 3/100 of the amount invested while 6/100
of the amount invested can be deducted for small or medium enterprise. However, for
investment in used facilities or the investment through lease will be exempted from this
deduction (Korea Legislation Research Institute & Korea Law Translation Center, n.d.).

Based on our research, it is evident that the South Korean government has indeed
demonstrated a commitment to utilizing tax incentives as part of their strategy to promote
medical tourism. However, through an examination of South Korea's initiatives in promoting
medical tourism since 2009 as showed as Figure xx, it becomes apparent that their primary
focus has leaned towards initiatives that extend beyond tax-related measurers. By examining
a timeline of the Korean government’s policy actions in support of medical tourism
abstracted from Xu et al. (2021), a policy mechanism encouraged medical tourism by
introduce a medical visa system aimed to streamline foreign patients’ entry and integrate to
the South Korean healthcare system. Other than that, the 2016 Comprehensive Plan
underscored significant hurdles for Korean’s medical tourism industry, such as limited
international recognition, scarcity of skilled personnel and language barriers. To address these
issues, the introduction of the national licensing system for International Meditour
Coordinators (IMC) was instituted, with the goal of elevating patient care coordinators who
perform specialized patient care, medical tourism interpretation coordinators who provide
accurate communication to the patient and medical marketer who emerged as a pivotal tool in
effectively promoting South Korea's array of medical tourism offerings (Seo & Park, 2018).
 (Figure xx: Timeline of the Korean Government’s Policy Actions in Support of Medical
Tourism, retrieved from Xu et al. (2021)

Taiwan

In order to recover post-pandemic tourism and stimulate consumption, Taiwan has unveiled a
plan to offer incentives to tourists in 2023. Taiwan government intends to provide a cash or
incentive worth NT$5.3 billion to tourists. A total of 500,00 tourists are expected to receive
an incentive valued at NT$5,000 (approximately RM700). Furthermore, group traveller is
also eligible to obtain the financial incentive from Taiwan government. Groups with 8 to 14
members can received the incentive for NT$10,000 (approximately RM1,450) while a larger
group can be entitled to an incentive of NT$20,000 (approximately RM2,900). (Almazan,
2023). The allocated budget has the capacity to cater a maximum of 90,000 groups of
tourists. These initiatives are designed to attract international visitors and bolster the overall
tourism industry.

Whilst the highlights of these incentives cover all forms of tourism, including business,
leisure and medical, it is worth noting that the Taiwan government's efforts in promoting local
medical tourism appear to be somewhat limited. In spite of extensive research, yet there is no
specific tax incentive for medical tourism has been identified. A noteworthy component of the
Taiwan government non-tax incentives, however, is the introduction of a medical visa.
Medical visas allow extension of stay on a case-by-case basis, compared to tourist visas
which have a six-month limit of stay (Taipei Medical Tourism, n.d.). In addition, the
Government of Taiwan has established the National Health Insurance (NHI) to provide
affordable and accessible medical services to locals and foreigners. This comprehensive
health insurance covers a range of treatments, including traditional Chinese medicine and
emergency care (A Detailed Guide on the National Health Insurance for Foreigners in
Taiwan, 2022).

With referenced with a SWOT analysis abstracted from Dai (2011), we can come up with a
few weaknesses in determining the reason why the government focuses mainly on the
tourism as a whole. Firstly, medical tourism has relatively lagged in development and lack
internationally renowned medical brand hospitals in Taiwan. Hospital’s physical
infrastructure and technological capabilities, including labelling and documentation are ye to
meet international standards, and the proficiency of medical personnel in foreign languages
remains limited. Moreover, the healthcare organization encounters challenges in talent
acquisition, procurement of essential equipment and medical marketing as the healthcare-
related regulations are strict and complicated. This will lead to hinder potential of the industry
for expanded investment. For the foreign patient, the restrictions in laws and regulations of
Taiwan will make the process of application become complex and made medical treatment
less flexible and convenient. These weaknesses have caused the government to choose to pay
more attention to tourism, see tourism as a whole, whereas medical tourism as a small part of
it only. Not only that, but also the perception of some Taiwan’s healthcare organizations
toward medical tourism is negative. According to Dan Silver, the co-chairman of the Medical
Equipment Committee of the American Chamber of Commerce in Taipei, he had expressed
his skepticism that medical tourism will divert the resources, time and expertise away from
local healthcare organizations. It will also need significant investment in raising awareness
and constructing a support structure and the overall advantages may be limited nationally
(Barker, 2015).
2.2 The Number of Medical Tourists Travelled to Malaysia, South Korea and Taiwan

Malaysia

Figure 1: Healthcare Traveller Volume (Source: MHTC Informatics)

The introduction of these tax incentive has increased the medical tourism in Malaysia.
According to Figure 1, it stated that there is a slight increase of 7% in the number of foreign
patients from 859,000 in 2015 to 921,000 in 2016 after the tax incentive being introduced in
2015 (Malaysia Healthcare Travel Council, n.d.). We can observe that the number of foreign
patients increased in a stable trend and gradually in the percentage of 14% until the pandemic
happen in 2020 (Malaysian Investment Development Authority, 2022). It can be said that the
tax incentives may have direct impact in increasing the volume of medical tourism as based
on the bar chart’s data.

According to Datuk Kuljit Singh, the president of Association of Private Hospitals (APHM),
he stated that more Indonesia’s tourist has pick Malaysia as their medical destination, thus it
has increased the number of medical tourism and generated more revenues to hotels and
tourism industry. Besides that, he stated that Malaysia has total of 8 hospitals that have JCI
accreditation. This determines that more hospitals are striving to provide high quality
healthcare services and apply for the double tax deduction exemptions.

Moreover, he highlighted that the investment tax allowance has motivated private healthcare
facilities to be involved in the promotion of medical tourism. Given that Malaysia hosted
more than 1.22 million medical travellers in 2019, the country's attractiveness in terms of
quality, accessibility and affordability remains relevant for individuals seeking healthcare
services regionally and globally (Malaysian Investment Development Authority, 2022).

South Korea
Number of patients ('000)

A c t u a l N u m b er o f fo r ei g n e p a ti en t s t r a v el i n g
t o so u t h k o r ea fo r m ed i c a l t r ea t m en t

497.47
378.97
364.19

321.57
296.89

248.11
266.5
211.22
159.46

145.84
117.07
122.3

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
year

(Figure 1: Actual Number of Foreign Patients Traveling to South Korea for Medical
Treatment, retrieved from Statista Research Department, n.d.)

The figure above (Figure XXX) illustrates the statistical data of foreign patients who
travelled to South Korea for medical treatment from 2011 to 2022. The data displayed a
consistent and upward trend from 2011 until 2016, witnessing a growth from 122.3 thousand
individuals to 364.19 thousand. Notably, in April of 2016, the government initiated the VAT
refund for Cosmetic Surgery. Subsequently, there was a decline of 12% in the coming year
after the refund and followed by a recovery in 2018 and leading to a 378.97 thousand of
medical tourists.

The outbreak of Middle East Respiratory Syndrome (MERS) undoubtedly impacted to the
lagging effect of this tourist-friendly policy as it resulted a drop of 40% of the overall tourism
industry in South Korea. The increment of 18% of medical tourists in 2018 is validated the
hypothesis of the director of Korea Industry Development Institute, Kim Soo-woong who
predicted the tax change will contribute to a surge of the number of Chinese visitors (Shim,
2015).

The peak was reached at 497.47 thousand medical tourists in 2019. Yet, the Covid-19
outbreak in 2020 contributed a substantial drop of 76% in medical traveller, owing to
lockdown to contain the virus. The years after 2020 witnessed a recovery following the
introduction of vaccines and the transition to post-pandemic phase.

Taiwan

The Taiwan government's priority is primarily on promoting general tourism, rather than
specifically targeting medical tourism. Therefore, this research captures no specific statistics
on medical tourists travelling to Taiwan. The focus remains on enhancing the overall tourism
experience and attracting different types of tourists.