The government has recently imposed 10 per cent Value Added Tax (VAT) on education provided by private universitiees and private medical and engineering colleges. There are some concerns regarding this. The Financial Express carried an op-ed on June 25, 2015 by Md. Jamal Hossain on the subject that attracted my attention. I would like to shed some lights on this issue.
In the second paragraph of the article, the writer wanted to mean, as I understand, that VAT should be imposed only on luxury items and should be paid by the rich as he mentioned that about 15 years ago students of North-South University represented only the rich class. This very concept is flawed both theoretially and practically.
VAT is a tax on consumption. Consumers of goods and services pay VAT. VAT is a broad-based tax. One of the basic principles of VAT is - lowest possible single rate and widest possible coverage. So, VAT is not a tax on luxury items, rather Supplementary Duty (SD) is a tax on luxury items. Taxes are of different types and nature. Income Tax is collected from income, Supplementary Duty is collected from luxury items, VAT is collected from consumption, Wealth Tax is collected from wealth, etc. So, VAT is not a tax on luxury rather it is a tax on consumption. Whoever consumes goods or services, he requires to pay VAT. Being a broad-based tax, VAT applies to almost all goods and services having impact on almost all sections of the people. Only very few necessary items like primary agricultural items, daily neessities like rice, etc. are kept outside the ambit of VAT. So in VAT system, middle class or upper middle class are not deserving of VAT exemption.
In VAT system, the consumers of goods and services shall pay VAT. An item is sold in the market with a certain price. It is not of any consideration whether the item is purchased by the rich people or the poor people. VAT applies equally to the rich and the poor. The government has many other policy measures to help the poor. VAT is a tax to collect money from the people.
If the writer has meant that VAT should be paid only on luxury items, then higher education is a luxury. The government is pledge-bound to provide primary education to all but not higher education to all. In even developed western countries, which we frequently refer in our discourse, a small section of the people get higher education. All others find jobs much earlier. Higher education is only for the deserving candidates who can contribute to society with reseach. For a society to florush, cheap higher education for all is not a good option.
The writer has mentioned a hard reality. In the last paragraph of the article, he has observed that education, unfortunately, has already become a white elephant due to rampant profit motive of a section of the owners of private universities. In our society, many entrepreneuers, who own profitable businesses, make money from education and health-care services. Even in our neighbouring India, you will find lots of charity institutions providing world class health-care services with nominal costs. The patients from Bangladesh are flocking there. In our country, a section of entrepreneuers have found education and health-care services as money-making machines. We never hear any hue and cry when tuition fees and charges are enhanced by these institutions. We hear hue and cry only when VAT is imposed on these costly services.
However, some entrepreneuers are recently doing CSR (corporate social responsibility) works in the forms of stipends to students, beautification of city roads, etc. These are praiseworthy.
It may be mentioned that VAT was there on private universities and private medical and engineering colleges a few years ago. VAT was paid by these institutions for a couple of years.
We do not pay enough VAT to the government. VAT-GDP (Gross Domestic Product) ratio in our country is one of the lowest in even South Asia. Tax-GDP ratio is also so. There are many causes of such poor collection of tax in our country, an important one being the absence of taxation culture, i.e., people are not well aware that they are required to pay tax. Surprisingly, many in the highest strata of society are of the belief that only rich people should pay tax and tax should be imposed on luxury items only.
Unfortunately, we have not yet been able to effectively combat tax evasion. Even under the current coverage of tax, if proper amount of tax would have been collected, we would have no need of foreign aid. Increase of tax base is a must for financing devleopment. To reach the status of a middle income country by 2021 and a developed country by 2041, our people would have to take some trouble of paying taxes. Let us not think tax as a burden but as a responsibility of paying the cost of goods or services. Cost of goods or services is to be borne by the purchaser of the goods or services, be he/she rich or poor. Let us conclude this piece with the recent slogan of National Boaad of Revenue (NBR) - REVENUE FOR PEOPLES WELFARE.
Dr. Md. Abdur Rouf is Director of the Central Intelligence Cell and Deputy Project Director of the VAT Online Project, National Board of Revenue (NBR).
roufcus@yahoo.com