Manufacturers of medical equipment will be supported by the introduction of “input” VAT reimbursement

The White House has submitted to the State Duma a bill amending the Tax Code to introduce refunds of “input” VAT to domestic manufacturers of medical devices. With a zero rate of “output” VAT established for this on the sale of such goods, this measure, in fact, will constitute a budgetary subsidy for Russian manufacturers of medical equipment. The government claims that this will remove the advantage of suppliers of imported medical products receiving VAT refunds when exporting to their countries.

The government amendments amend Art. Chapters 164 and 165 of the Tax Code on VAT. Now both Russian and imported medical products from the government-approved list are completely exempt from VAT upon their sale or import (we are talking, for example, about X-ray machines, various devices for functional diagnostics, artificial lung ventilation devices, cars for the disabled, rehabilitation equipment and many other things).

This makes such goods 20% cheaper, but creates a problem: in the absence of “output” VAT, it is impossible to reimburse “input” VAT (paid by the manufacturer to its suppliers of materials and components) from the budget. That is, “input” VAT is included in the cost of medical equipment, and is not reimbursed, as is the case for industries that do not have tax exemptions. In the explanatory note to the bill, its authors note that all this “creates unequal fiscal conditions in comparison with foreign products imported into the Russian Federation,” since for them the exporting country reimburses manufacturers for VAT when exporting equipment outside the country.

The introduced bill solves this problem: instead of the current exemption from “output” VAT, a zero rate of this tax is introduced. Thus, the burden on the manufacturer does not increase, medical equipment does not become more expensive, but he has the right to reimbursement of the “input” VAT paid to suppliers of raw materials and components used in the production of medical equipment.

At the same time, according to the government’s plan, this right will arise only for Russian companies, since in order to confirm compensation, the tax authorities will need to submit a registration certificate of a medical device issued in accordance with the law of the EAEU or the legislation of the Russian Federation, as well as an extract from the registers of industrial products produced in the territory Russia or other “five” countries. The White House explains the need to support domestic manufacturers of medical equipment by saying that this industry requires significant investment, is knowledge-intensive and “strategically important for ensuring the overall technological independence of the state.”

Let us note that it is not yet clear which medical products will be included in the “VAT – 0%” list: departments must prepare a draft of the relevant government resolution by December 1 of this year. It can be assumed that in many respects it will repeat the current list of tax-exempt medical equipment. By the same date, two other existing lists of medical products will be updated: with VAT at a rate of 10% and exempt from this tax.

“Replacing the VAT exemption with a zero rate is indeed more profitable for most companies; this model works in many industries,” notes Alexander Erasov, partner at the law firm MEF LEGAL. According to him, since the scope of the list of medical products that will be affected by the innovation is not yet clear, it is too early to talk about the scale of business savings.

Experts estimate the total production of medical devices in the Russian Federation at approximately 200 billion rubles. At the same time, according to estimates of the Ministry of Industry and Trade and industry associations, the share of Russian medical equipment and medical products on the market does not exceed 25%. “Now that sanctions have caused problems with the import of high-tech medical equipment, the need for import substitution has become obvious,” notes Andrey Vilensky, CEO of the analytical company Meditex. According to him, the innovation will help Russian manufacturers accumulate additional funds from the sale of their products, which can be used to develop production.

Vadim Visloguzov, Anastasia Manuilova