Should education be taxed at all in a country where parents invest their all, even selling their meagre land holdings or blowing up old age pension to educate their children? It does seem a little odd that in a country where the gross enrolment ratio (GER) in higher education is just 25 education or certain facets of education are taxed. Even the draft NEP hopes that enrolment would be 100% in schools and 50% in Higher education by 2030.
GST implemented a year back has some exciting prospects and some real concerns. The GST Law is a comprehensive, multi-stage, destination-based tax that is levied on every value addition. GST, defines “educational institution” as providing services by way of pre-school education, higher secondary school or a Vocational school.
Taxable supply means supply of goods or services or both that can be taxed. Hence, services like transportation of students, faculty and staff, catering, security, cleaning or house-keeping, services relating to admission, or conduct of examinations, are not required to be taxed under GST provided they are made available to an educational institution. Conversely, the ‘input’ or supply of these services by a third party, to educational institutions will bear GST levy. This dichotomy must be addressed. An Institution might outsource services to optimise expenses and will be taxed but the same shall remain out of tax ambit if undertaken by self.
Can we really separate services that add value to delivery side of education and levy taxes on them? Are not transportation or a canteen essential to the delivery of education itself? In a generic sense education like accounting, banking, cleaning, or consultancy is a service. Sometimes sub services may be difficult to identify because they are closely associated with the main service. Taxing education can be counterproductive apart from raising some pertinent questions. Given that the Constitution lists education as not for profit, is the State tacitly approving commercialisation? For an over 60% young population, education should easily be available at minimal cost. Taxing services that value add the basic process does not seem logical.
What then would be the value chain in education? The institution appoints teachers, provides infrastructure and other inputs. The value of the input increases by teaching aids, experts engaged, experiential learning tools, contemporary industry specific certifications and internships which coalesce to create an industry ready product or student. The Institute However, cannot sell its products to the industry. The attributes of the products could be further honed by the finishing schools or even specialised training centres. At a time when every accreditation agency is crying hoarse that the end products do not have employability skills, how prudent it is to tax the very services that provide these skills?
Another fallacy seems to be the need for educational institutions to register under GST and hence liable to be taxed, even when such other services, like books, shoes, uniforms, musical instruments, computers, sports equipment and after-school activities are offered directly by third parties. On the other hand, if the institution were to provide all these by itself, it would probably be exempted of tax.
In a system where teacher student ratios are abysmally low, almost every student is driven to a coaching system that only helps in making up for the lack of adequacy required of a very competitive professional education. Even school children are perforce driven to online tutorials or online coaching, to just be there. But if private institutional training that may not give a degree or a diploma, is charged at the rate of 18 percent it deserves a relook. Distance or Online or hybrid education is the last resort for the uninitiated and the unreached or even one who wants to excel. If this is labelled as value addition or higher education and hence taxable at the rate of 18 percent, does it not defeat the very purpose it promotes?
Another area of concern for the education and training sector is the taxability of educational events organised by a foreign based entities in India. The foreign entities organize educational training events in India which are attended by individuals, participants from business entities and overseas participants as well and would become liable to GST. However, it appears that services received from a provider of service located in a non- taxable territory by an individual in relation to any purpose other than commerce, industry or any other business or profession would also be exempt. In view of this exemption, one may take a view that training events organized in India by a foreign entity and attended by individuals, for any purpose other than commerce, industry or any other business or profession would be exempt from GST. However, this interpretation would lead to redundancy of the concept of non-resident foreign entities organizing training events in India.
The government has done well in the budget to announce skilling avenues in the areas of AI, Robotics, Digital Marketing, Cloud Computing and Machine Learning. But these are high end skills offered by endowed training centres. The only way out for acquiring these employability skills is re-skilling and up-skilling. Professional upgradation of skills cost a lot of money and GST will only up the stakes beyond reach. Can we see education with its services exempted from GST completely or at least limited to 5%? Several countries like France, Germany, Korea, UK, Switzerland, Japan, Canada, South Africa and many others levy no charge on education services whereas UAE, Kuwait, Oman and many other Gulf States levy no tax whatsoever.
Some robust student tuition fee funding models and scholarships are required if everyone has to be educated. Government would do well to create a corpus that is enriched by CSR, the State, the Centre, philanthropy et al. that would provide soft loans. Education in as much as is deemed to be not for profit, must also be devoid of all taxes. A relook at GST levied on services in education may be in order. Taxes are the lifeblood of government and no taxpayer should be permitted to escape the payment of his just share of the burden of contributing thereto. It is equally true that a fine is a tax for doing something wrong and a tax is a fine for doing something right. Let us not tax for doing right.