Space For Rent

Space For Rent
Tuesday, June 30, 2015, Ashar 16, 1422 BS, Ramadan 12, 1436 Hijr


Why not tax on education?
Alauddin Mohammad
Published : Tuesday, 30 June, 2015,  Time : 12:00 AM,  View Count : 295
Why America is so powerful today? This question may have several answers. But if we attempt to find one single answer then we have to look back to its one of founding fathers Benjamin Franklin's famous statement "An investment in knowledge pays the best interest", following which today's America is nothing but the outcome of investment made in education few centuries ago. How they have done that? Did they impose tax on education or subsidy?
Following the global trend of 'Knowledge Economy' just within 44 years of independence, Bangladesh has shown tremendous progress in attaining mass literacy and school enrolment. According to the UNESCO, in 2012, the adult literacy rate was 58.79 per cent whereas it was only 29.23 per cent in 1981. This development has been possible through increasing public-private investment and relentless works of NGO in education sector.
In such optimistic track the finance minister has proposed 10 per cent VAT (VAT stands for value added tax introduced since 1991 in Bangladesh) on private universities in the FY2015-16 budget speech. Earlier he had also expressed that government was planning to impose more tax on some specific books. These statements and proposals have raised doubts regarding the sincerity and efficient coordination of government's policy towards education in general and higher education in particular.
There are primarily two economic logics behind imposition of tax for any commodity. First, the government needs revenue for survival, since it has to spend in many public sectors, so it needs to collect tax from possible sources. Second, tax is an instrument by which government discourages specific goods (public 'bad') which create negative externalities for which government tries to curb production/consumption of that particular product or service. Conversely, government provides subsidy to encourage some goods which has positive externalities for which government thinks those to be produced/consumed more and more. The high tax rate on tobacco, alcohol, luxury cars etc and high subsidy on agriculture, hospital, public infrastructure etc can be seen from the prudence of social usefulness or harmfulness.
The proposed tax on education and related materials like books should be viewed in terms of above logics. Evidently the tax on private universities can't be considered separate from whole education sector since with 81 private universities enrolling more than 400,000 students presently sharing the largest portion of higher education (UGC Report, 2014). Although higher education here has not been maintaining the desired standard in most cases, the spill-over effect from it is crucial to the overall education for all which was one of the major targets in Millennium Development Goals (MDGs) as well as the current Sustainable Development Goals (SDGs) set by the United Nations. Considering the government's development agenda, education in particular higher education in no way can be seen as public 'bad' or inauspicious where government can impose tax which is even contradictory to its development policy itself.
Imposing VAT on private universities will negatively affect the education sector. In current global system if we look at any of the success case in development we will see education played the vital role. Japan, South Korea, Singapore, China, Brazil and most recently India all those countries are just going ahead with their strong focus on education which ultimately leading them to technological innovations, research and mass training which are sitting in the driver seats of their economic growth. More importantly in all those countries, government played the dominant role in developing the education sector. Their experiences show that development is just unmanageable in current world without public investment in education sector.
Furthermore, this is the fundamental basic rights of Bangladeshi citizens to get basic education. The Constitution of Bangladesh (Section-17) has guaranteed Free and Compulsory Education for all. This is committed that:
"The State shall adopt effective measures for the purpose of- a) establishing a uniform, mass-orientated and universal system of education and extending free and compulsory education to all children to such stage as may be determined by law; b) relating education to the needs of society and producing properly trained and motivated citizens to serve those needs; removing illiteracy within such time as may be determined by law."
With that commitment the government has already made education free in primary level and partially free in secondary and higher secondary levels. The higher education sector is also highly subsidised through more than 40 public universities. In 1991, when for the first time private universities were allowed to establish it was the government's response towards increasing demand for higher education which was not possible to meet up with the then existing public sector. However, in the Private University Act 1992, private university is considered not for profit organisation which gives the private universities a distinctive status to take part with public sector. After 24 years of first private university it can be said that private universities are unburdening the responsibilities of government and working as a supportive body of public sector. In this background, impose tax on a 'not for profit organisation' is unethical and contradictory to the constitutional commitment of the country. Rather the government should provide them concrete support to improve their standard for greater public interest.
We shouldn't forget another reality of Bangladeshi higher economic class while they used to prefer foreign universities for their kids incurring huge amount of foreign currency each year from the economy. Right now also we see many mediocre universities of Malaysia, Thailand, India and similar other are posing big billboard in the cities showing the comparing cost advantages of their universities and attracting many students per year. In that context, the decision to allow private universities was a realistic and effective one which prevented and still preventing numerous merits and money to stay in this country and contribute to domestic economy. But the current proposal of government will make Bangladeshi institutions more costly which will lead the sector fall back in global competition.
From the stylised facts we see that expenditure in education is directly related to economic development. As a tool to overall progress and social harmony, education is the central to any civilisation. If we consider currently dominant western civilisation, then, this is because of their Universities and Research centres, not alone military might. According to latest World Bank consolidated data (2007) Denmark spends 7.8 per cent of its GDP on education, Norway 6.8 per cent, Sweden 6.6 per cent, Finland 5.9 per cent, France 5.6 per cent, United States and United Kingdom 5.5 per cent and among the newly developed countries South Korea spends 5.0 per cent, Brazil 5.1 per cent, Hong Kong 4.5 per cent, China 4.3 per cent, Malaysia and Thailand 4.1 per cent while Bangladesh spends only 2.2 per cent of its GDP on education (FY 2015). Here we see a clear correlation between development and public expenditure in education. So, if we visualise future Bangladesh in the leading stream of civilisation then we must value education the highest and allocate maximum of our resources to this long term socio-economic investment.
However, it is true that Bangladesh has the lowest Tax-GDP ratio (8.94 per cent in FY 2014-15) in South Asia and its tax base needs to be expanded. But we have to remember that we need higher tax base and strong government to ensure inclusive and sustainable development. If the government choose education, books and such socially investment goods for tax collection then it will be counterproductive to development. In addition, it will contribute in social inequality, capital flight and will make higher education inaccessible to a lot of middle and lower middle class families to whom education is the only ladder to development.r
Alauddin Mohammad is a faculty member of International University of Business Agriculture and Technology















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