Ukraine. Healthcare system flowcharts. Compulsory sources of finance

Central and local self-government budgets represent the major official source of financing for health care. The total budget in Ukraine is derived chiefly from taxation revenues (more than 70% from all kinds of income), non-fiscal income, revenues from trade with capital and other sources. The majority of all fiscal revenues (value added taxes, business income taxes, international trade and excise taxes) goes to the national budget. Local budgets are derived mainly from the part of taxation that is raised in different administrative and territorial units. This represents about 85% of their fiscal revenues. Local budgets are derived from small business taxes, land taxes, licence fees on certain entrepreneurial activities, vehicle taxes, environmental pollution payments and local taxes, dues and duties. National tax rates are set in accordance with taxation laws as determined by Parliament (Verkhovna Rada).

Local administrations set the rates for local taxes and dues. There are no taxes specifically earmarked for health financing and there is no system of tax relief for the purchase of health cover. The tax administration system, comprised of the State Tax Administration of Ukraine and regional and municipal tax authorities, is responsible for enforcing the tax laws, ensuring correct amounts and the timeliness of charges. The Tax Administration coordinates its activities with fiscal authorities and the State Treasury. It reports all taxes received, as well as other charges and fees.Health care funding is considered a state responsibility. In accordance with Ukrainian law, the execution of state duties can be delegated to subnational levels. In this case, the national budget must assign budget resources in the form of assigned national taxes, fees, mandatory payments or shares thereof to the relevant budgets, or perform transfers from the national budget. To determine the volume of inter-budgetary transfers, Ukraine uses the so-called Financial Standard of Budget Sufficiency – that is, the guaranteed amount of resources transferred for the implementation of assignments delegated by the state within the limits of budget resources. In reality, the government underfunds allocations, forcing local authorities to use their own resources. 

In 2005, the revenue basket of local authority budgets was used to support social programmes, including health (Ganushchak, 2006). As financial resources are collected through a system of general taxation this should mean health care funding is progressive. However, the Ukrainian system has a number of specific regressive traits. For example, the existence of two taxation subsystems – a standard and a simplified system – undermines the integrity of the taxation system. Further, widespread tax evasion and the existence of tax benefits cause significant irregularities in the distribution of the tax burden; there is a single flat income tax rate for people with different incomes. As a result, the Ukrainian taxation system is not as progressive as it could be and a number of loopholes challenge the stability, administrative simplicity and efficiency of the system.

On 13 June 2007, Ukraine passed the National plan for health care development by 2010 (Cabinet of Ministers Decree No. 815) to reform the health system. One chapter deals with strengthening the financial base of the sector through a transition to social health insurance. However, the problem of complementary sources of finance has not yet been resolved. There are multiple economic obstacles confronting the decision to introduce social health insurance. First of all, it is a heavy tax burden on employers (social insurance tax already accounts for 39% of the salary fund). Second, the price increase of utilities, particularly gas, has undermined the Ukrainian economy’s competitive ability and has thus reduced the chances of reaching a consensus regarding the introduction of, what is in essence, a new income tax.
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