VAT on private university education has attracting huge public attenion. In an article published in the Financial Express on June 28, 2015, this writer explained the rationale behind VAT on private university education.
In our development discourse, we frequently refer to other countries, specially developed ones. This article will do the same, i.e. draw references from developed countries with regard to the applicability of VAT on private university education.
The majority of countries generally exempt education services from VAT. However, many countries do not extend VAT exemption to education services when provided by establishments that are not part of the state-provided education system, not recognised by the state or do not meet certain criteria. For example, Ireland exempts virtually all publicly and privately provided education. But in the UK, the educational establishments must meet the definition of an "eligible body". For-profit institutions operating outside of the normal government education system often do not meet this definition. In fact, the UK went through a consultation exercise in 2012 on extending VAT exemption to for-profit providers of higher education services. The outcome of the consultation was that exemption was denied and these institutions remain subject to VAT.
Within the European Union (EU), the VAT regime is harmonised to a large extent. Based on Article 132 of the Directive 2006/112/EC, EU member-states are in general obliged to exempt the provision of university education within their national VAT systems. According to the European Court of Justice, the aim of the exemption is "to facilitate access to those services by avoiding the increased costs that would result if the services were subject to VAT" (para 26 of the MDDP judgment). In principle, public and private universities are covered by the exemption. In order to profit from this exemption, private organisations, however, must fulfil the condition of pursuing objects similar to those of bodies governed by public law. Member-states are not permitted to grant the supply of educational services exemption to all private organisations providing such services and also to those whose objects are not similar to those of bodies governed by public law. Private universities, which do not pursue aims comparable to public universities, are not covered by the exemption; they are subject to VAT. The rate may vary from one EU member-state to another.
Moreover, based on Article 133 of the Directive 2006/112/EC, the EU member-states are permitted to make the granting of this exemption to private bodies based on one or more conditions, namely: the bodies in question must not systematically aim to make a profit; those bodies must be managed and administered on an essentially voluntary basis by persons who have no direct or indirect interest; those bodies must charge prices which are approved by the public authorities or which do not exceed such approved prices or, in respect of those services not subject to approval, prices lower than those charged for similar services by commercial enterprises subject to VAT; the exemptions must not be likely to cause distortion of competition to the disadvantage of commercial enterprises subject to VAT. If a member-state decides to use this option provided by Article 133 (requiring private universities to fufill one or more of these conditions) and a private university does not fulfil the condition(s) set, then the provision of services is subject to VAT. If a member-state has not expressly made entitlement to the exemptions in question subject to the absence of a profit-making aim within its domestic law, the pursuit of such an aim cannot preclude entitlement to those exemptions (para 31 of the MDDP judgment). There is an important judgement by the European Court of Justice handed down in 2013, where the scope of the exemption was discussed in detail (ECJ 28 November 2013, C 319/12, MDDP).
Singapore's Goods and Services Tax (GST) system, similar to VAT system, is designed to be broad-based with minimal exemptions, to keep GST rate low and to ensure that the system stays simple and easy to administer. This will avoid increasing compliance costs for companies which will ultimately be passed on to consumers. Exemption from GST currently only applies to the provision of financial services, the sale and lease of residential properties, and the import and local supply of investment precious metals (IPM). Zero-rating applies to the provision of international services under Section 21(3) of the GST Act and supplies of exported goods. Other than the above mentioned supplies, all other supplies of goods and services by GST-registered businesses in Singapore, including public and private university education, is subject to 7.0 per cent GST.
In New Zealand, private university education is subject to GST at the standard rate of 15 per cent. This is because New Zealand's GST is very broad-based with a uniform rate and few exemptions (the main exemptions being financial services and residential accommodation). The broad-based framework was a deliberate decision made when GST was introduced in 1986, not just in order to maximise the revenue collected, but also to reduce costs for administrators and taxpayers and to minimise distortions to economic decision-making.
The readers may now conclude whether or not VAT should be there on our private university education.
Dr. Md. Abdur Rouf is First Secretary (VAT) and Deputy Project Director of the VAT Online Project, National Board of Revenue (NBR). roufcus@yahoo.com
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