Tax-based Financing
PST 06105: HEALTH FINANCING
Session
4
: Tax-based Financing
Learning Tasks
At the end of this session students are expected to be able to:
Define
tax-based financing
Explain
how tax-based financing operates in the health sector
Enumerate
advantages and disadvantages tax-based
Activity: Brainstorming
What is tax-based financing?
3
Tax-based financing
Tax-based
financing (public financing) is a financing mechanism whereby financial
resources
are raised through
taxes
by the
government. There
are two types of taxes that the government use to raise financial
resources:
Direct
taxes:
taxed levied on wealth and incomes; example direct taxed are property
tax
, income tax, and corporate
tax
Indirect
taxes:
taxes levied on expenditure and services; examples are value added
tax(VAT
), excise duty, betting tax, and vehicle
license
duties
Tax-based
financing is a predominant form of health care financing in most of
Sub- Saharan
Africa, including Tanzania
It
is a suitable for most countries that have the administrative and economic capacity to
raise
taxes, establish an efficient network of providers, and the capacity to target the poor
Tax-based
financing mechanism constitutes the most widespread health financing
mechanism
around the world.
Activity: Brainstorming
What are the main parties that form a tax-based financing mechanism?
5
Operation
of Tax-based Financing
Operation
of Tax-based Financing
Tax- based financing mechanism involves three parties:
citizen and users
of
health services
,
governmental
organizations,
and
providers of health
service
In tax-based financing,
citizen and users
of health services pay taxes to government organizations (e.g. Ministry of Finance through revenue entities and local governments) to enable the government to obtain financial resources for provision of health services and other services that citizen need.
Governmental
organizations
, responsible for collection of governmental revenues (taxes
), disburse
the collected financial to providers of health services (e.g. doctors, hospitals,
and pharmacies
).
Providers
of health services
in turn use the financial resources to acquire health
resources (e.g
. staff, medicines, buildings, and equipment). The acquired health resources are
used by
health service providers to provide health services to citizen when they need
such services
.
Activity:
Small group discussion
What are three advantages and disadvantages of tax-based financing?
8
Advantages of
Tax-based Financing
Tax-based
financing has potential for
financing health services
to a large number of
population
members
. More revenue can
be generated for services and used for comprehensive cover of the community.
The
income generated is usually
stable
; where stability depends on
political commitment
and economic condition of a country
Financial
resources raised through tax
is flexible
:can be used for different uses
or expenditures
Payment of taxes is not related to health need, it has
potential equity
depending on
tax system
of countries
Disadvantages of
Tax-based Financing
Sometimes the finance raised through this means is
unstable
, especially
during economic
crisis and in large informal sector, where many people do not pay taxes
It
may
encourage inequity
if the tax based system depends much on indirect
taxes rather
than direct taxes like income taxes
In
most cases, in developing countries, it has
failed to meet the health needs
of
the poor
thus leading to the introduction of other financing mechanisms notably
Social Health
Insurance (SHI) and Community Health Insurance (CHI) schemes
Key Points
Tax-based
financing mechanism constitutes the most widespread health
financing mechanism
around the world and financing resources are raised mainly through
various taxes
paid by citizens
Tax-based
involve three parties in health service: citizen and user of health
services, government
, and provider of the health service
Tax–based
financing has both advantages and disadvantages
Evaluation
What
is tax-based financing?
List
three parties involved in tax-based financing
What
are the three advantages and disadvantages of tax-based financing?
References
Evans
, R. G.( 2002).Financing health care: Taxation and the alternatives. in
Mossialos
, E.,
Dixon, A.,
Figueras
, J.,
Kutzin
, J., Funding Health Care: options for Europe.
Buckingham & Philadelphia: Open University Press.
Folland
, S., Goodman, A. C., &
Stano
, M. (2007). The economics of health and health
care
.New York: Pearson
Getzen
, T. E. (2013). Health economics and financing. Hoboken, NJ:
Wiley.
Gottret
, P.
Schieber
, G. (2006). Health financing revisited: a
practioner’s
guide. World Bank
Green
, A. (2007). An introduction to health planning for developing health systems. Oxford:
Oxford
University Press.
Guinness
Mainhead
: Open
University
Press.
References
Jiyenze
, M. K. (2013). Health care financing and resource allocation: handout for teaching
health
care financing.
Arusha
: CEDHA. [Notes:
Unpublished]
Mossialos
, E., Dixon, A.,
Figueras
, J.,
Kutzin
, J. Funding Health Care: Options for Europe.
UK
: Open University Press,
2002.
Olsen
, J. A. (2009). Principles in health economics and policy. Oxford: Oxford University
Press
.
Savedoff
, W. D. (2004). Tax-based financing for health systems: options
and
experiences.Geneva
:
WHO
Tanzania
.
MoHSW
(2014). DHM Healthcare financing module. Dar
es
Salaam:
MoHSW
WHO (2003). Mental health financing. Geneva, WHO.
World
Health Organization. (2017). Developing a national health financing strategy:
a
reference
guide. Geneva: World Health Organization.
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