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HEALTH CARE FINANCING THROUGH TAXATION: CENTRAL ISSUE IN
DEVELOPING COUNTRIES
Nischal Risal, Lecturer
Faculty of Management, NCC, TU.
Visiting Faculty, IOM, TU.
THE PANCEA JOURNAL
YEAR 2013
VOLUME 3 ISSUE 1
PAGES 25-27
General Background
A health system, also sometimes referred to as health care system or healthcare system is
the organization of people, institutions, and resources to deliver health care services to meet the
health needs of target populations. Everyone has felt that there is a need of health care financing
to provide better health care services. But, here is, question mark on, how to do it? In the context
of the world, many researches have been done on this issue, and thousands of the researches are
on pipeline to find the exact solution of health care financing. The rapid emergence of many
chronic diseases, which require costly long-term care and treatment, is making many health
managers and policy makers re-examine their health care delivery practices. The major diseases
that need health care financing may be HIV-AIDS, Cancer due to tobacco smoking and alcohol
drinking, Diabetes, Blood Pressure, and other Chronic Illness. For example, in 2006, according
to World Health Organization, at least 171 million people worldwide suffered from diabetes. Its
incidence is increasing rapidly, and it is estimated that by the year 2030, this number will double.
A controversial aspect of public health is the control of tobacco smoking, linked to cancer and
other chronic illnesses. The developing country like Nepal is also having same problem. Thus,
health care financing become important issue for an individual, society and nation in our context
too. Today, most governments recognize the importance of public health programs in
reducing the incidence of disease, disability, the effects of ageing and health inequities, although
public health generally receives significantly less government funding compared with medicine.
For example, most countries have a vaccination policy, supporting public health programs in
providing vaccinations to promote health. Public health is concerned with threats to the overall
health of a community based on population health analysis. Vaccinations are voluntary in some
countries and mandatory in some countries. Some governments pay all or part of the costs for
vaccines in a national vaccination schedule. The management of any health system is typically
directed through a set of policies and plans adopted by government, private sector business and
other groups in areas such as personal health care delivery and financing, pharmaceuticals, health
human resources, and public health. Hence, the major sources of health care financing should be
government subsidy. But in practice, the developing countries could not subsidy for better health
care services. So, other sources of financing are needed. The other sources may be financing
through taxation, personal health insurances, donation from developed countries etc. At present,
by observation, we come to realize that the most common source of health care financing may be
through taxation. Again, the research issue can be raised, whether to finance through taxation or
health insurance. Which one will be effective in future? This issue has opened the ground for
researchers in this area. But instance, lets concern with short term sources of financing i.e.,
taxation financing.
Taxation and Health Care Financing
The goals for health systems, according to the World Health Organization, are good
health, responsiveness to the expectations of the population, and fair financial contribution. The
progress towards them depends on how systems carry out four vital functions: provision of
health care services, resource generation, financing, and stewardship. A health system consists
of all organizations, people and actions whose primary intent is to promote, restore or maintain
health. This includes efforts to influence determinants of health as well as more direct health-
improving activities. A health system is therefore more than the pyramid of publicly owned
facilities that deliver personal health services. It includes, for example, a mother caring for a sick
child at home; private providers; behavior change programs; health insurance organizations;
occupational health and safety legislation. It includes inter-sectoral action by health staff, for
example, encouraging the ministry of education to promote female education, a well known
determinant of better health.
Publicly funded health care is a form of health care financing designed to meet the cost of
all or most health care needs from a publicly managed fund. Usually this is under some form of
democratic accountability, the right of access to which is set down in rules applying to the whole
population contributing to the fund or receiving benefits from it. In some countries the fund is
controlled directly by the government or by an agency of the government for the benefit of the
entire population. This distinguishes it from other forms of private medical insurance, the rights
of access to which are subject to contractual obligations between an insurer (or his sponsor) and
an insurance company which seeks to make a profit by managing the flow of funds between
funders and providers of health care services. When taxation is the primary means of financing
health care, and sometimes with compulsory insurance, all eligible people receive the same level
of cover regardless of their financial circumstances or risk factors.
An employment-based financing is regressive and complex. Serious debate is needed on
an alternative solution to financing health care for all. The taxation represents a clear alternative
to employment-based health care financing. The major criterion for choosing a tax is equity, with
simplicity a second criterion. An earmarked, progressive individual income tax is a fair and
potentially simple tax with which to finance health care. The political feasibility of such a tax is
greater than that of employer mandate legislation.
Tax is a financial charge or other levy imposed upon a taxpayer (an individual or legal
entity) by a state or the functional equivalent of a state such that failure to pay is punishable by
law. It consists of direct and indirect taxes. In modern taxation systems, taxes are levied in
money. Tax collection is performed by a government agency. The government used the money
collected as a tax or tax income in the expenditures on protection of public property, economic
infrastructure development, public works, social engineering, transportation, subsidies,
development of academic activities, public welfare, energy, water, sanitation, health care
systems etc. The government use different kind of taxation system in the country. The
government must make choices regarding the distribution of tax burden. i.e., who will pay taxes
and how much they will pay, and how the taxes collected will be spent. So, there is a possibility
of health care financing through taxation. Taxation is the good source of financing. For this;
individual, society and nation should take an initiation.
Some Possible Ways to Health Care Financing Through Taxation
a. Taxation on Cigarettes (Tobacco)
A habitual injurious product used by most of the public is cigarettes, composed of
tobacco. Government has made restriction policy on consuming these tobacco products as it is
proved as injurious to health. Nevertheless, the habitual person cannot get rid from the use of
tobacco. The government has levied higher tax rate on such products, but the consumption of
cigarettes is not decreasing. By observation, we can see that, habitual individuals are ready to
change the brand and consume less costly product but they do not stop to smoke the cigarettes.
So, certain percentage of tax on cigarettes may not hamper the consumption behavior of the
public. That's why some proportion of tax may be levied to cigarettes for health care financing
would become ultimately a good solution. A fund generated through tax on tobacco products
may be utilized in the treatment of tuberculosis and other diseases borne by tobacco.
b. Taxation on Luxurious Goods
The second source of health care financing may be taxation levied on the purchase of
luxurious goods such as vehicles, luxurious furnishing etc.
c. Taxation on Entertainment Activities
People would like to spent lots of money in an entertainment sectors. A small extra
taxation cost added in an entertainment cost can be manageable cost for the people. So, the
probable area of funds generation for health care services may be through taxation system on
entertainment areas like cinema, rafting, television programs etc.
d. Taxation on Alcoholic products
Another important source of fund generation is tax on alcoholic products. The
government has already levied higher tax rate on alcoholic products. In addition to this, some
extra proportion of tax on such products in the name of health care services may be beneficial for
health care financing.
e. Taxation on import of foreign goods
The junk foods and other goods are imported in Nepal as complementary and
supplementary goods. The certain proportion of tax on these items can be good source of income
generation to provide good health care services.
f. Taxation on Private Sectors
The fund can be generated by adding certain percentage of taxation on the profit of
private sectors such as private colleges, business of private company etc.
g. Taxation on Travel Fare
People are ready to pay high amount of air fare to visit the different countries. They are
ready to incur high amount in travelling around the world. So, certain value added as tax on this
mechanism can promote the health care services.
h. Taxation on food and beverages
Today, many restaurants are operating in our community. This business has taken great
part in the development of the economy. We are paying 13% VAT and 10 percent service charge
on each item/services provided by the restaurants. Some extra nominal percentage increase in tax
for health purpose will not discourage the customer of the restaurants. Hence, taxation in food
and beverage for saving health may be good source of funding.
Conclusions
There may be numerous ways of thinking for health care financing. I have tried to point
out some of these areas of health care financing through my personal knowledge and
observations and these information are also gleaned from the review of different international
journals and articles. The more concrete knowledge on this issue can be acquired through
advance research in this area which I have left for future researchers. Thus, more research is
needed to explore the feasibility of recent developments in this area.
By observation, evidences showed that earmarked taxes have succeeded in reducing the
use of health damaging products and in raising additional funds for health promotion programs in
various countries. The government should take initiation on such programs to promote the health
care delivery system. The government should use the funds collected through taxes to provide
health care services prioritized from poor to general public. The funds can formally not be used
for other programs even when prioritized, thus limiting the government’s discretion to use funds.
Today, tax based health system have emerged from broad political, social, and economical
trends. The tax based system may be the good strategy for healthy society.
Finally, I also agree with the statement of WHO report of GENEVA, “Out-of-pocket
spending is the most frequent way to pay for health services around the world. However, as a
share of the total value of global health spending, it is eclipsed by social insurance, private
insurance and general taxation. These latter forms of payment provide better financial protection
for households because they are ‘prepaid’ and pool health risks across individuals. In fact,
government revenues are the predominant source of health care expenditures in 106 out of 191
WHO member countries.”
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