VAT: Are we practising it right?

Students of almost all private universities staged streets demonstrations for last one week demanding lifting of value-added tax (VAT) on tuition fees, and finally, the government has announced withdrawal of VAT imposed in the current budget. The much-awaited announcement to rollback VAT on tuition fees of private universities came on Monday, September 14, 2015 amid continuous protests by students across the country, including in the capital Dhaka. However, the question remains: are we really practising VAT in its true spirit?
VAT is an indirect tax, collected in stages through what is called "the chain of supply", which is imposed on goods and services at each stage of production, starting from raw materials to final products. VAT is levied on the value additions at different stages of production. For example, when a television is built by an X manufacturer, the manufacturer is charged a value-added tax on all of the supplies purchased for manufacturing television. Subsequently, when the television reaches the shelf, the consumer who purchases it has also to pay the value-added tax that applies to him or her. Value added tax can be recovered but not by individual consumers on purchases made by them. Businesses can recover VAT on the services and materials, which are bought by them in order to continue the supply of the products and services.
VAT was first introduced in France by the French economist, Maurice Laure, which came into effect on April 10, 1954. In Bangladesh, VAT was introduced in 1991 replacing Sales Tax and most of the Excise Duties. With the passage of 24 years, VAT has become the largest source of government revenue. About 56 per cent of total tax revenue in Bangladesh is VAT revenue. Now, let us explain how standard VAT procedure works: VAT-registered businesses charge VAT on their sales termed as ("output tax") and recover VAT on their purchases and expenses termed as ("input tax") and pay the difference to the VAT authority. They submit returns to the tax authorities stating the value of their output tax and input tax in a particular period of time (fiscal year) accompanied by the relevant payment vouchers.
Here is an example showing how the system works for a manufacturer and retailer involved in purchase and sale of televisions.
Stage One: A manufacturer purchases goods and services costing Tk.600,000 plus VAT @10 per cent i.e Tk. 60,000. He purchases them from a range of suppliers each of whom is registered for VAT and charges VAT on their supplies. He makes a number of televisions that he sells to a retailer for Tk.100,00,00 plus VAT @10 per cent i.e Tk.100,000.
The manufacturer's VAT return shows the following:
n Output tax: Tk.100,000 payable to VAT authority
n Input tax: Tk.60,000 reclaimable from VAT authority
n Net tax payable: (Tk.100, 000 - Tk60, 000): Tk.40, 000
Stage Two: The retailer sells all of the televisions to retail customers for a total of Tk.1,500,000 plus VAT @10 per cent i.e Tk.150,000.
The retailer's VAT return shows the following:
n Output tax: Tk.150,000 payable to VAT authority
n Input tax: Tk.100, 000 reclaimable from VAT authority
n Net tax payable: (Tk150, 000 - Tk.100, 000): Tk.50, 000
Hence, each business involved in the manufacturing and retailing of the goods creates a "chain of supply" and VAT is collected in stages from the businesses rather than from the retailer at the point of final sale.
Education is considered a process of facilitating learning, and it is neither a commercial thing nor a product. According to the University Grants Commission (UGC), there are 85 private universities and 64 private medical institutes where about half a million students are enrolled. These institutes hardly get any facilities from the government. Moreover, lack of seats in the public universities causes many to enrol in private universities. These private universities are managed from tuition and other fees taken from students. Donations and contributions are also a part but the main income of these universities is tuition fees. At the year-end balance, if income is more than the expenditure, then according to law, this surplus amount has to be reinvested in the development of the universities. Also, According to the Private University Act 2010, private universities are regarded as non-profit organisations. This means private university education is not a commercial thing. If that's the case, how could government impose VAT on these organisations?
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