The tax burden and the IRAP paradox faced by healthcare organisations
Hospital trusts and local health authorities pay a tax intended to fund the National Health Service of which they form part: a circular transaction that brings no benefit to the system
Key points
There has been much talk recently, both in Parliament and on talk shows, about the ‘tax burden’; the opposition accuses the Government of allowing it to rise steadily, now exceeding 43 per cent – the highest level in the last decade: 51.4 per cent in the final quarter of ’25. This figure is mistakenly perceived by the public as the average tax rate on their income, which they consider excessive; many politicians and journalists share this perception. However, no account is taken of the paradox represented by the taxes paid by public bodies, and in particular those levied on National Health Service (NHS) organisations.
In fact, it is a macroeconomic indicator calculated by Istat, representing the ratio of the sum of all revenue received by the State and local authorities (i.e. direct and indirect taxes, duties and social security contributions) and the Gross Domestic Product (GDP), which is the total value of goods and services produced in the country over a given period; the taxes paid by citizens are just one component of the indicator, so all the others (and in particular GDP) can also have a significant impact; consequently, comparing the indicators from one year to the next is not sufficient to assess the level of taxation; if output falls, the indicator rises even without an increase in the tax burden on citizens. It is also necessary to ascertain whether there is distributive equity: if 84 per cent of personal income tax is paid by employees and pensioners, it is clear that the various preferential tax schemes are in blatant contrast to the constitutional principles of progressivity and ability to pay.
The IRAP paradox in public bodies
It should be noted that IRAP was introduced in 1997 to replace the revenue from a series of minor taxes and levies, as well as health contributions payable by citizens. Those required to bear the burden of this tax – paid to the State but allocated to the Regions to fund the National Health Service (SSN) – included both private entities (companies and self-employed individuals operating independently, and private non-commercial organisations) and public non-commercial bodies, such as Ministries, Regions, municipalities and the newly established National Health Service (SSN) agencies. The basis of taxation for the private sector was the so-called ‘value of production’, that is, the difference between revenue generated and costs incurred (net of those relating to employees and external contractors).
In the public sector, however, the taxable base consisted of employees’ salaries and income from self-employment; the initial rates were 4.5 per cent for the private sector and 8.5 per cent for the public sector. Whilst in the private sector the tax has been progressively reduced – through a lower rate, the exclusion of self-employed individuals with their own business organisation, and a deduction for staff costs – nothing has changed in the public sector. The paradox is particularly evident in the case of hospital trusts and local health authorities (ASLs), which pay a tax intended to fund the National Health Service (SSN) of which they form part; it is a circular transaction that inflates both public revenue and expenditure, without any benefit to the system. When calculating the tax burden, according to the ISTAT/Eurostat methodology (ESA 2010), all taxes paid to public administrations are counted as ‘tax revenue’, regardless of who pays them. If payments from public bodies were excluded, Italy’s tax burden would be a few decimal places lower.
The Constitutional Court’s position and the prospects for reform
The Court has ruled on IRAP on several occasions (the ‘landmark’ judgment is No. 156 of 2001); however, the 45-page judgement makes no mention whatsoever of National Health Service (SSN) organisations. The Court argues that the ability to pay does not coincide with ‘income’: Article 53 of the Constitution does not require taxation to be levied solely on net earnings (profit); IRAP is levied on the added value generated by ‘new wealth’ that has been organised, regardless of whether this becomes profit for a private individual or a service for the community. Despite the Constitutional Court’s ‘green light’, the paradox remains for three reasons:
