Private medical institutions are to enjoy the same preferential tax as state-owned hospitals in China, which helps create a fair competition platform for all hospitals and attract more social capital into the nation's healthcare sector.

China will exempt non-profit privately owned hospitals and clinics from the medical service income tax and medicine value-added tax as well as housing, land and vehicle and vessel usage taxes, according to the Ministry of Finance. For-profit hospitals and clinics will be exempted from business tax and within three years from taxes on some other items, such as real estate, property and medicine.

The measures are among initiatives approved by the State Council on Dec 3 in a document about encouraging the development of private medical institutions.

"Relatively high tax obligations have become a barrier for the development of many private hospitals, which provide the same products and services as their State-owned counterparts, while paying much more tax," said Huang Keqin, director of Beijing Imperial Palace Orthopedics Hospital, a non-profit private hospital.

So far, only State-owned enterprises enjoy the preferential tax rate and fiscal subsidy in China.

"It's unfair and an obstacle to our business expansion, so we welcome the policy and hope it will be carried out as soon as possible and effectively," said Huang.

Lee Zhang, chairman and chief executive officer of iKang Guobin Healthcare Group, said the government's decision will greatly help the industry's development.

iKang Guobin is China's largest private health management company by sales. Its sales exceeded 400 million yuan ($60.12 million) last year and are expected to surpass 1 billion yuan within two years. The tax reduction means direct profit growth for the company.

Wang Yingjie, general manager assistant of Evercare Medical Institute, a private plastic surgery clinic in Beijing, said the private hospitals have developed in China for years, but the relative laws and regulations are still not comprehensive. Evercare has just acquired a South Korean clinic in the city.

"We have enough money, but the point is whether it is worthwhile for us to invest," said Wang. "The cost of public healthcare service is high, but the return is relatively low. As a commercial hospital, we need to consider our profits," she said, adding that policies with clear regulations and detailed measures are needed.

The newly issued preferential-tax policy, which is clear and definite, is beneficial to China's private-medical-care sector, said Guo Fanli, healthcare industry analyst at China Investment Consulting.

"It helps all hospitals compete on the same platform and gives financial incentives to private medical institutions, while implementing the policy at all levels, and sound and effective supervision are most important," he said.

Jia Kang, director of the Institute of Fiscal Science Research under the Ministry of Finance, told China Daily that the preferential-tax policy is certain to encourage investors and promote the development of the private medical service industry.

"Tax policy is a kind of supplementary support, and the policy is somewhat necessary," said Jia.

By 2009, private hospitals accounted for 36 percent of medical institutions in the country, according to statistics from the Ministry of Health.

(China Daily December 10, 2010)