How will tax refunds affect Medical Purchases? The Ministry of Finance explains

The Ministry of Finance explained how the return of taxation will affect Medical Procurement

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From January 1, 2024, drugs and medical products for patients with serious diseases will be subject to value added tax (VAT).

The “Patients of Ukraine” group published a post in which urged The Ministry of Finance and the Cabinet of Ministers will exempt from VAT medicines purchased with state funds.

But the Ministry of Finance explained such a decision by the need to fill the state budget.

“UP. Life” spoke with the general director of Medical Procurement of Ukraine, Edem Adamanov, and received an answer to a request to the Ministry of Finance to find out why medicine should be taxed, money for which is taken from the budget.

What is the problem of taxation

State procurement was exempted from taxation in 2015. This made it possible to contract directly with manufacturers and significantly reduce the cost of purchasing medicines. Patients were able to get more innovative medicines from abroad, which Ukraine does not produce.

However, in 2024, taxation was returned. According to Edem Adamanov, Director General of Medical Procurement of Ukraine, this “innovation” will significantly complicate procurement.

In addition to spending more money, there is another problem: medicines are ordered not only from Ukrainian manufacturers, but also from abroad. However, for foreign companies, this will create additional complications that will make it impossible for them to participate in procurement on Prozorro.

“Instead, you will have to buy drugs from distributors who always charge a markup. This will entail a significant reduction in the amount of drugs that can be purchased within the amount allocated from the state budget.”– notes Edem Adamanov, General Director of Medical Procurement of Ukraine.

He added that the return of VAT on medical purchases will mean a reduction in the number of drugs by almost 10%, because part of the orders for 2023 have not yet been delivered to Ukraine.

“This will probably affect those who need medicine the most. Because we are talking about medicines that the state buys for patients who are in hospitals with serious diseases. The main areas are pediatric and adult oncology, hemophilia, orphan and cardiovascular diseases, etc“, Adamanov continues.

The General Director of Medical Procurement of Ukraine notes that due to the introduction of VAT, the waiting time will increase by at least two weeks, because now there will be additional time for payment from the treasury account and payment processing. The patient will suffer from lack of flexibility and speed.

What they say in the Ministry of Finance

The Ministry of Finance of Ukraine explained that special taxation conditions for medical purchases from the state budget were valid until December 31, 2023. This norm was specified in the Tax Code.

But due to granting Ukraine the status of a candidate for EU membership, the tax legislation was “updated” in accordance with the Council Directive 2006/112/EU of November 28, 2006 “On the common system of value added tax”.

“Implementation of Ukrainian tax legislation is a mandatory condition for Ukraine’s accession to the EU.

Therefore, the solution to the issue of supporting the functioning of the procurement system in the field of health care should be carried out not by providing tax benefits, but in accordance with state programs that provide for specific sources of funding.” – the Ministry of Finance explained.

Edem Adamanov calls the situation a stalemate, because the state budget is filled, in particular, with VAT, and then purchases are made with his funds.

“Actually, the budget will not be enriched: in practice, it’s like transferring a coin from one jacket pocket to another. But, unfortunately, patients will suffer from such manipulation“, he notes.

Will taxation affect medicines that pharmaceutical companies provide to patients free of charge

In many countries of the world, there is a program called “Medicine with Compassion”, under which a patient who participates in clinical trials of a drug continues to receive the drug after their completion. For the most part, such therapy is very expensive. But pharmaceutical corporations help patients with rare diseases – they provide drugs for free or at a very large discount.

“However, now these companies also have to pay 7% VAT. This is the same as taxing charity”, says Edem Adamanov.

The Ministry of Finance noted that they proposed to include in the Tax Code the possibility of exempting drugs from taxation under this program, but the Tax Office did not support the proposal.

Also, the Ministry of Finance fears that tax exemption for unregistered medicinal products will create unequal conditions for similar operations.

“That is, in one case, the taxation of medicines and medical devices will be carried out at the rate of 7%, and in the other – there will be an exemption from taxation. Such inequality also creates conditions under which the registration of medicines and medical devices becomes unattractive.”the Ministry said.