The government recently announced Value Added Tax (VAT) @7.5% on tuition fees of students of private universities. This triggered students' agitation. Academics and political parties also criticised the government's tax policy. In fact, the issue is neither 'no tax' nor 'yes tax'. It is rather somewhere in between.
Majority of the people, particularly in the developing countries, do not have the ability to pay tax whether it is income tax or expenditure tax (VAT is an expenditure tax). The rich and those who have the ability to pay provide most of the taxes.
The better life of have-nots depends on tax payment by the rich. It is a universal theory and policy to collect tax first from the rich and from those who have the ability to pay. One of the major reasons for under-development is that the government fails to collect even the minimum and legitimate taxes from this class of people.
Around 11 per cent tax of GDP (gross domestic product) in Bangladesh is one of the lowest in the world. The world average is around 27 per cent. In the industrialised countries it is 29 per cent and even in the South-East Asia, it is 18 per cent.
In a democracy, the government cannot forcibly impose any tax on people. The benefit of doubt generally lies with the people. The payment of tax is not always economic alone; it is also a cultural phenomenon. It depends on people's taste, education and values. Continuous discussion and negotiation are necessary in a good tax system.
A tax is never settled in the year of beginning. It is always hindered by some imperfections: equity issues and compliance problems. Gradually over the successive years, the imperfections are minimised through discussions and negotiations.
Education is not the only rights. Food, shelter, health and security are also basic constitutional rights all of which are contingent on the payment of taxes by the rich. All these rights of people are largely absent in many developing countries largely because the rich do not pay their due taxes.
The government made a mistake. It tried to generalise that all students would pay the tax. It did not realise sufficiently that 60 to 70 per cent of the students do not have the ability to pay. Agitating students also made a major mistake. They did not try to understand that taxes in developing countries mainly come from 20 to 25 per cent people who are rich. They were generalising 'no VAT, on education'. As a result, the rich and those who have ability to pay escape from being taxed. By doing this, they themselves worked against their own interests. Common people's interests always depend much on rich peoples' tax payment.
What is ability to pay? Nowadays with the help of information technology, it is easier to calculate how rich one is. His income records are available with the tax office, his savings certificates are with the Bangladesh Bank and his apartments are duly registered. His own rough estimate is right now about who has the ability to pay 1.0 million taka or above a year. There is always a scope for discussion and negotiation about this amount. The government should have said that those who have 1.0 million taka or above will pay VAT rather than generalising VAT on all students.
Some people confused tax issues. They asked: why on education? Why on private universities? Why not on income? Tax is a relatively complex issue. It requires expertise and broader knowledge of economics, accounting, history, sociology, finance, government fiscal position and world experience. Tax issues always need a gradual process. Somewhere the government has to start.
Gradually, the rich in the public universities would be included. More and more products and services will come under the tax net. English-medium school students are paying VAT. Private universities are paying income tax.
Take the history of VAT. More and more products and services are being added every year. No tax is perfect. Since one tax is difficult to collect, the government has to introduce another tax. But not by punishing the rich. Only those who have the ability to pay will pay. And it is no longer that difficult to know who has that ability. It requires a transparent administration. It is a matter of understanding, discussion and negotiation. In the developed countries, more and more people are participating in tax revenue of the government.
Dr. Dhiman Chowdhury is Professor of Accounting, Dhaka University.
dhiman_chowdhury@yahoo.com
