The Relationship between "Tax-Exemption" and "Community Benefit Service" of Not-for-Profit Hospitals

Liang, C. M., Kuo, J. S., Ho, Y. C., and Li, I. H. 2018. The Relationship between "Tax-Exemption" and "Community Benefit Service" of Not-for-Profit Hospitals. NTU Management Review, 28 (2): 1-32. doi:10.6226/NTUMR.201808_28(2).0001

Chih-Min Liang, Associate Professor, Department of Public Finance and Tax Administration, National Taipei University of Business
Jenn-Shyong Kuo, Professor, Department of Accountancy, National Taipei University
Yi-Cheng Ho, Professor, Department of Public Finance, National Chengchi University
I-Huei Li, Revenue Officer, Xinyi Branch, National Taxation Bureau of Taipei, Ministry of Finance


The government often subsidizes nonprofit organizations with tax benefits to encourage their engagement in community benefit services. This paper discusses the connection between community benefit service expenditure and the tax-exempt interest of not-for-profit hospitals in Taiwan. Method: We used the panel data from 43 not-for-profit hospitals in Taiwan from 2006 to 2011 and analyzed the data with fixed effects model and instrumental variables models. The above mentioned method is utilized for the examination of the relationship between the tax-exempt interest and the expenditure of medical juridical persons (not-for-profit hospitals) in uncompensated care services, educational research activities, and community benefit services. Results: Regression results show that tax-exempt interest has a negative relationship with uncompensated care services spending, a positive relationship with educational research and development expenses, and no significant relationship with community benefit service expenditure. Conclusion: The public and the authority generally consider that the main purpose of granting not-for-profit hospitals tax benefits is to encourage more medical social activities, such as providing free medical care and healthcare, rather than to improve research momentum or educational quality, although educational research activities are indirectly related to community benefits. However, empirical results show that gaining tax-exempt interest can make a positive contribution to not-for-profit hospitals in engaging in educational research activities, while has a reverse relationship with uncompensated care services. Tax-exempt interest and total expenditure of community benefit services are not significantly related, possibly because not-for-profit hospitals provide community benefit services which are mainly affected by other factors, or maybe because the tax-free status has no connection with the supply of community benefit services. 


not-for-profit hospitalstax benefitcommunity benefit service

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