TAX EXEMPTIONS FOR HEALTH CARE
IN RUSSIA
M.E. Orlova
Kazan Federal University, Institute of Management, Economics and Finance,
Kazan, Russia
F.F. Adigamova
Kazan Federal University, Institute of Management, Economics and Finance,
Kazan, Russia
V.I. Nasyrova
Kazan Federal University, Institute of Management, Economics and Finance,
Kazan, Russia
S.V. Salmina
Kazan Federal University, Institute of Management, Economics and Finance,
Kazan, Russia
E-mail: orlovamarina64@mail.ru
Recepción: 05/08/2019 Aceptación: 20/09/2019 Publicación: 23/10/2019
Citación sugerida:
Orlova, M.E., Adigamova, F.F., Nasyrova, V.I. y Salmina, S.V. (2019). Tax exemptions
for health care in Russia. 3C TIC. Cuadernos de desarrollo aplicados a las TIC. Edición Especial,
Octubre 2019, 346-359. doi: https://doi.org/10.17993/3ctic.2019.83-2.346-359
Suggested citation:
Orlova, M.E., Adigamova, F.F., Nasyrova, V.I. & Salmina, S.V. (2019). Tax exemptions
for health care in Russia. 3C TIC. Cuadernos de desarrollo aplicados a las TIC. Special Issue,
October 2019, 346-359. doi: https://doi.org/10.17993/3ctic.2019.83-2.346-359
3C TIC. Cuadernos de desarrollo aplicados a las TIC. ISSN: 2254-6529
348
ABSTRACT
In Russia, much attention is paid to the development of the healthcare sector by
providing nancial direct and indirect support. The granting of tax preferences
facilitates the activities of the institutions themselves, since this greatly alleviates the
tax burden for them and ensures the inow of capital and investment in this area.
All this contributes to the development of the private medicine sector, increasing
the cost of research and development related to health, which in turn brings
benets to the population. The main direction of application of preferences in
the eld of health care will contribute to the further development of the industry.
The extension of the existing preferences, in particular on income taxes, which
expires next year, may contribute to the development of both public and private
health organizations. Of course, it’s not about indenite exemption from the tax,
a developed practice is the establishment of a reduced tax calculation rate, with
its subsequent gradual increase. This option is the most lenient for organizations,
as a sharp transition from full tax exemption to calculating it at the maximum rate
under normal conditions may entail a sharp increase in the tax burden, which
can adversely aect the average and small health care businesses just starting its
detail.
KEYWORDS
Taxation of health care facilities, Preferences for healthcare facilities, Value
added tax preferences, Reduced social tax rates, Temporary tax preferences.
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1. INTRODUCTION
Public health and ensuring for it all the necessary conditions for the provision
of health care services is one of the most important tasks of any state. The
development of any of the areas, in particular health care, is impossible without
government intervention. The need for continuous funding of organizations,
investment in research and development requires considerable expenses.
Health care is divided into the public and private sectors, and if state organizations
are nanced by the state budget, the development of the private sector directly
depends on many economic factors, one of which is taxation.
Trends in the change of healthcare institutions in Russia for the period from 2005
to 2016 are presented in Table 1.
Table 1. Dynamics of changes in the number of healthcare institutions in Russia from 2005 to 2016.
2005 2010 2013 2014 2015 2016
The number of registered
medical organizations in
health care.
Of them:
36117 26174 25981 26987 27525 26556
Nongovernmental 2934 2240 2338 2465 2459 2660
State 33183 23219 23100 24056 24286 23091
Source: (Russia in numbers, 2017).
Under the conditions of reforming the health care system for the period, the
total number of health care institutions for the study period decreased by 26.4%.
Reduction occurred only in a group of government organizations.
Russia has three channels for nancing health care institutions: budgetary, state
medical insurance and extrabudgetary.
The health of certain groups of the population and the overall eectiveness of
health care depend heavily on the method of nancing the health system. The
state provides the health care system with the necessary nancial resources to
provide the population with high-quality, aordable, timely medical care. On
average, total government spending on health care amounts to 3.5% of GDP.
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Unfortunately, there is a decrease in this indicator. Unfortunately, there is a
decrease in this indicator. Since the beginning of the reform of the health care
system, budget expenditures for these purposes have been reduced by almost
100 billion rubles (from 401.1 billion in 2014 to 302.4 billion rubles in 2016)
(Akishkin, 2014).
2. METHODOLOGY
In conducting the study, the methods of comparison and generalization, methods
of statistical analysis and methods of analogy for determining risks were used.
3. RESULTS AND DISCUSSION
The nomenclature of health facilities was approved by the Ministry of Health
of the Russian Federation on August 06, 2013. N.º 529n. According to this
nomenclature by type of activity medical organizations are divided into three
large groups: treatment-and-prophylactic, organizations of a special type,
organizations for supervision in the eld of consumer protection. Each group has
its own details, including from ve to more than thirty institutions, each of which
may specialize in a specic topic.
The preferential terms of application prescribed in the Tax Code of the Russian
Federation, incl. tax rates, do not allocate with this separately taken types of
institutions, and mainly apply to one or another type of there activity.
Health care institutions in Russia can use the general tax regime and the special
tax regime in the form of a simplied tax system (Table 2). These are taxes for
which no preference is provided.
Table 2. Dynamics of taxes paid by health care institutions, billion rubles.
Year
Income
tax
Personal
income
tax
VAT
Excise
taxes
Taxes on
the use
of natural
resources
Property
tax
Special tax
regime
Social
contributions
2015 5 ,4 191, 0 8,50 0 0,03 9,95 5,60 no data
2016 5 ,4 191, 0 8,50 0,01 0,03 9,95 5,60 no data
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Year
Income
tax
Personal
income
tax
VAT
Excise
taxes
Taxes on
the use
of natural
resources
Property
tax
Special tax
regime
Social
contributions
2017 4 ,5 209 ,5 8,10 0,00 0,03 7,70 7,00 435,00
2018 5 ,0 256,8 8,90 0,00 0,03 7,90 8,70 532,80
2018,
%
0,7 30,5 1,1 0 0 3,5 1,1 63,2
Source: (Ponyuhov, 2016).
If state organizations are nanced by the state budget, the development of
the private sector directly depends on many economic factors, one of which is
taxation Health care is an industry in which the main burden falls on the wage
fund, more than 60%.
The main preferences provided for health organizations relate to VAT and
income tax. In certain regions of the Russian Federation privileges on property
tax may be established.
Table 3. Tax preferences for health organizations.
TAX
Types of medical and health
organizations
Preferences
Income
tax
State, municipal
and private medical
and health organizations
Art. 251 of the Tax Code of the Russian Federation - non-
taxable income
Art. 284.1 of the Tax Code of the Russian Federation -
application of the 0th rate
VAT
State, municipal
and private medical
and health organizations
Art. 145 of the Tax Code of the Russian Federation - full
exemption from VAT
Art. 149 of the Tax Code of the Russian Federation - (paragraph
2 of paragraphs 1, 2) exemption from taxation of certain
operations.
Art. 164 of the Tax Code of the Russian Federation (clause 2,
clause 4) —application of a reduced rate of 10% on VAT
Property
tax
State, municipal
and private medical
and health organizations
Tax legislation of the subjects of Russia
Land tax
State, municipal
and private medical
and health organizations
Decisions of municipal representative bodies
Transport
tax
State, municipal
and private medical
and health organizations
Tax legislation of the subjects of Russia
Source: Tax Code of Russia (Tax Code (Part I) of the Russian Federation of July 31, 1998; Tax Code
(Part II) of August 5, 2000).
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A change in the established tax rates for individual taxes and taxpayers, whether
on an urgent or a perpetual basis, can either increase interest in a particular
area or restrain its development, if necessary. Since the subject of our research
is healthcare institutions and their activities, let us consider what kind of “relief ”
the legislator provides for this category of taxpayers.
One cannot but agree with the opinion of the researchers that the development of
tax preferences is necessary not only for the health care organizations themselves,
but also for private investors in this eld (Dadashev, Meshkova, & Topchi, 2016). For
Russia, at present, the use of aggressive tax optimization methods is questionable.
Moreover, the institution receives an additional competitive advantage as a bona
de taxpayer (Retz, 2015). When applying the tax preferences of a health care
institution, in order to minimize the risks of violating tax laws and holding them
accountable, they must maintain internal tax control over the implementation of
the established framework for the use of benets (Ponyuhov, 2016).
The preferences for the value added tax in the eld of health care are associated
with the exemption from taxation of certain operations and the implementation
of the conditions for their use established in paragraph 2 of Article 149 of the
Tax Code of Russia. Growth of falling incomes of the budget on the VAT in
the eld of public health services is observed. At the same time, the number of
declarations in which this preference is declared is decreasing.. (Picture 1).
The number of declarations in which the release is declared, thousand units.
The amount of tax accrued to the payment to the budget in the absence of exemption from taxation, bill. Rub.
VAT receipts from health and social services, bill. Rub.
66,8
111,8
8,5
124,9
132,9
9,4
122,4
148,4
8,1
85,4
170,2
8,8
2015
2017
2016
2018
Picture 1. Dynamics of shortfall in income on VAT on health care institutions and tax returns. Source:
(Ponyuhov, 2016).
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According to a number of specialists in the eld of organization and economics
of health care, the current exemption of medical services from VAT is essentially
no incentive for the development of entrepreneurship in health care and, at
the same time, does not have any impact on the nancial situation of medical
organizations. According to experts, with the help of these tax benets, the
state is trying to limit the prices of paid medical services. And this is benecial,
rst, to consumers, that is, patients, which, of course, cannot be regarded as an
exclusively positive point in the practice of taxation (Podogova & Orlova, 2018).
Tax preferences for VAT exceed the actually received VAT from the health care
industry by 19 times. Russian health care institutions are actively using the right
to association. Based on the statistical reporting data of the Federal Tax Service
of Russia, the dynamics of tax expenditures, when applying VAT exemptions for
medical goods and services, health services are presented in the Picture 2.
The amount of VAT charged in the absence of exemption from taxation.
The amount of VAT that is deductible on purchased medical goods, health services and services not subject to VAT, in the absence of
exemption from taxation on all transactions.
The amount of VAT on purchased goods (works, services), not deductible.
The amount of tax accrued to the payment to the budget in the absence of exemption from taxation.
2015
2017
2016
2018
231,8
83,4
18,6
23,2
22,8
27,2
111,8
245,7
89,6
132,9
259,9
292,2
88,7
148,4
94,7
170,2
Picture 2. The dynamics of falling budget revenues in connection with the application of exemptions
by health care institutions under paragraph 2 of Art. 149 TC RF, bill. Rub. Source: (Ponyuhov, 2016).
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Preferences are oered for health care facilities and for income tax. According to
clause 1.1 of Article 284 of the Tax Code of the Russian Federation, organizations
engaged in medical activities have the right to apply a tax rate of 0% on income
tax for the period from January 1, 2011 to January 1, 2020. Established the need
to comply with certain conditions: the availability of a license, the compliance of
the services provided to the established list of operations and separate accounting
(Tax Code (Part II) of August 5, 2000). The possibility of applying the 0% tax rate
is provided when performing the following procedures: notifying the tax authority
of this preference application, license availability, compliance of the services
provided to the established list of operations, income from medical activities
more than 90%, at least 15 employees, 50% and more work continuously in the
state certied specialist (Tax Code (Part II) of August 5, 2000).
Until 2019, social tax preferences were established. For example, organizations
engaged in the production of medicines, medical instruments and equipment,
carrying out activities in the eld of health care, as well as pharmacies, single
tax payers with no imputed income, had the right to apply a lower insurance
premium rate for the period 2017-2018. This preference exempted them from
paying contributions to compulsory medical and social insurance funds and
reduced the rate for contributions to the pension insurance fund from 22% to
20%.
4. SUMMARY
The provision of preferences for one of the most important taxes, the rates for
which are quite high (value added tax - 20% from 2019, corporate income tax
- 20%, insurance premiums at the basic rate - 30% of wages), provides milder
operating conditions and has a positive impact on the health sector, ensuring
growth in investment, capital inows and a growing number of non-governmental
institutions.
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Table 4. The number of health organizations in the period 2014-2016.
Year
Total
number of health
organizations, th.
Number of private health
organizations, th.
The share of private health
organizations in the total, %
2014 83,2 51,4 61,7
2015 86,0 55,1 64,0
2016 85,9 56,5 65,8
Source: (Russia in numbers, 2018).
During the period under review, the number of nongovernmental organizations
in the health sector increased by 10%. The trend of growth of this indicator is
observed at the present time, despite the fact that the total number of health care
organizations is declining: in 2017 their number decreased compared to 2016 by
6.6% and amounted to 80.3 thousand.
Health organizations tumover, bill. Rub.
Healthcare Investment, bill. Rub.
2015
2016
2017
1920
182
181,8
195
2014,4
2157
Picture 3. Service revenue of organizations and investments in xed assets in the eld of health.
Source: (Russia in numbers, 2018; Russia in numbers, 2017).
There is a tendency of growth at once on two indicators: turnover of organizations
and investments made in xed assets. In the period from 2015 on 2017 turnover
of health organizations increased by 12%, and investment in xed assets in the
eld by 7%. At the same time, given that the overall growth rate of investment in
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all areas in 2017. in relation to the indicators of 2016. increased by only 4.2%;
an increase in investment separately in the healthcare sector by 7% is a good
indicator.
Another conrmation of the active development of the health sector in recent
years is also the fact that the cost of research and development in the direction
of “protecting the health of the population” over the past 10 years has doubled,
reaching in 2017. 30.5 billion rubles (Russian statistical yearbook, 2018, с.485).
Comparing the gures we cited, especially the amount of investments and
turnover of organizations for the period 2015-2017, we can say that the provision
of tax preferences in the health sector gives a positive result.
Providing this kind of preferences for exemption from tax payment or the use
of a reduced rate when calculating it is, undoubtedly, a kind of support for
organizations, but for the state this means under-received funds to the budget.
That is why most of the preferences listed by us are temporary: the application of
the reduced tari on insurance premiums has not been implemented since 2019,
the application of the 0% rate on income tax is limited to 2020.
The abolition of the preferences provided is natural, since initially their
introduction provides for a temporary nature. However, the health care sector is
not the sector that can have priority in development today, but tomorrow it will
give way to the production or services sector. As mentioned earlier, the health
sector is always one of the most important for its maintenance and development.
5. CONCLUSIONS
Based on illustrative examples, based on ocial statistics, we can assume that the
extension of the existing preferences, in particular on income taxes, which expires
next year, may contribute to the development of both public and private health
organizations. Of course, we are not talking about indenite exemption from
the tax, a developed practice is the establishment of a reduced tax calculation
rate, with its subsequent gradual increase. This option is the most lenient for
Edición Especial Special Issue Octubre 2019
DOI: https://doi.org/10.17993/3ctic.2019.83-2.346-359
357
organizations, as a sharp transition from full tax exemption to calculating it at the
maximum rate under normal conditions may entail a sharp increase in the tax
burden, which can adversely aect the average and small health care businesses
just starting its detail.
As a result of the study, the following problems were identied:
• Lack of reporting on the assessment of the eectiveness of tax preferences
for health care organizations;
• Tax preferences for organizations carrying out scientic research in the
eld of medicine and health care are not enough.
In order to solve the rst problem, we recommend using the criteria for evaluating
the eciency of tax benets of health care institutions: an increase in the cost
of equipment (technical base) of a medical organization, an increase in the
indicators of high-tech medical care, an increase in the indicators of medical
care in nosology and introduce appropriate reporting from health organizations.
To solve the problems of the second group, it is advisable to introduce tax holidays
for VAT and income tax for companies implementing new medical equipment,
VAT and income tax for companies that are developing new drugs, property tax
for healthcare organizations carrying out introduction of new development of
equipment for medicine.
6. ACKNOWLEDGEMENT
The work is performed according to the Russian Government Program of
Competitive Growth of Kazan Federal University.
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