Tax on Private Universities: Lack of financial transparency is the real problem

The Appellate Division of the Supreme Court issued a ruling on 27 February mandating that all private universities and private medical, dental, and engineering colleges in the country pay a 15% tax, as determined by the National Board of Revenue (NBR).

The country's attorney general, AM Amin Uddin, assured that the tax burden will not be passed on to students, as it will be imposed on the surplus funds after covering all administrative expenses, salaries, etc from tuition fees and other sources of income. 

Still, there is growing concern among students that the universities might increase tuition and other fees to compensate for their added expenses. 

Such fear is very much backed by Mithu Mohammad, a former student of East West University, who was one of the organisers of the No VAT on Education movement back in 2015, in response to the introduction of a 7.5% VAT on higher education in private universities. 

Notably, he had earlier also been a part of another student movement in 2010 when the NBR imposed a 15% income tax on private medical and engineering colleges, and ICT institutes, following a similar imposition on private universities in 2007.

On both occasions, student uprisings meant the tax or VAT was not eventually implemented. But now, with the ruling of the SC, many students' biggest fears may come true, believes Mithu. 

"I doubt the university authorities will cover the expenses themselves. Therefore, students and their families are inevitably going to suffer," Mithu said. 

However, as The Business Standard delved deeper into the matter, it became apparent that the problem mainly stems from a lack of transparency in the income and expenditures of private universities. But of course, with appropriate measures to enforce discipline, the situation could improve.

Otherwise, the sufferings of the students will be way more than meets the eye, exposing further disparities in the country's education sector. Also, this could prompt students from private universities to take to the streets once again. 

How lack of financial transparency led to this situation 

The private universities in the country are under the purview of the Private University Act 2010. They are run as non-profit organisations under the Trust Act. On the other hand, as per the existing Trusts Act-1882, non-profit organisations managed under the trust are not taxable.

Therefore, the question is, why did the NBR issue a notification in 2007 mandating that private universities pay a 15% tax?

Dr Abdul Mazid, former chairman of the NBR between 2007 and 2009, and also a former secretary to the Bangladesh government, stated that the recent ruling by the High Court validates the point made by the NBR all along.

He explained that despite private universities being intended as non-profit institutions under a trust, the reality suggests otherwise. Some private universities' trust members lead lavish lifestyles, which indicates that these universities are highly profitable and fund their lifestyles through earnings from the institutions.

"The tax will not be imposed if private universities can demonstrate that they are being run as non-profit trusts. However, if trustees are found to be treating the universities as personal assets and engaging in commercial activities, they will be required to pay the tax," Dr Mazid said. 

He also emphasised that universities must submit their audit reports properly to prove transparency in their profitability.

Section 45 of the Private University Act 2010 stipulates that private universities must annually prepare and maintain their income and expenditure accounts in the format specified by the University Grant Commission (UGC). 

These accounts are required to undergo auditing by a government-nominated firm from the list of external audit firms (CA firms) approved by Bangladesh Bank. The audit report must be submitted to both the Ministry of Education and the UGC by 31 December of the subsequent financial year.

However, a review of UGC's latest (49th) annual report revealed that out of 100 universities in the country, 43 universities in 2022 had not submitted the previous year's audit reports to UGC. Among them are some reputed universities.

In the financial year 2021-22, 57 private universities submitted their audited financial statements to the commission along with nomination papers from the audit firm of the Ministry of Education.

Overall, the annual reports of UGC for the last three years further reveal that some universities, including North South University, University of Science and Technology Chittagong, Central Women's University, State University of Bangladesh, Prime University, Presidency University, Prime Asia University and The Millennium University have consistently refrained from submitting the audit reports. 

When contacted, UGC member Dr Biswajit Chanda informed that they sent letters to private universities and are going to take necessary steps in this regard.

UGC secretary Dr Ferdous Zaman further shed light on the matter saying that they have recently taken the issue very seriously, and around 20-22 private universities submitted their reports over the past few days. 

"We have decided to take strict action against private universities that fail to submit their reports. We will withhold approval for their new course curricula," Dr Zaman said. 

Dr Mazid said that it's due to a few private universities that all parties are facing potential suffering. However, if financial transparency is ensured, the court ruling could very well be overturned in the future.

Likely consequences 

What if the High Court ruling stays and private universities are indeed required to pay 15% tax?

According to Mithu, the sufferings of the students may not come in the form of having to shell out more money than before only. It could also affect other necessary academic amenities enjoyed by students in universities.

Mithu emphasised that any surplus funds should be allocated towards the institution's development as well as providing tuition waivers and scholarships, and improving research and laboratory facilities.

"However, if a substantial portion of these funds must be diverted to the government as tax, students will endure unforeseen repercussions," he explained.

And so, Mithu suggested that current students of private universities should protest against the tax ruling once again. Anupam Debashish Roy, a young columnist, researcher, and activist, echoed the same sentiment.

"The private university students rebelled in 2015 against the VAT decision on their tuition fees and they will possibly repeat their struggle if the government forces this tax on them. It is time the government stops regarding private universities as second-class and provides them with the honour and benefits that they deserve," he said. 

Meanwhile, the act of imposing tax on private universities will lead to further brain drain in the country, believes Dr Kamrul Hasan Mamun, Professor of Physics at Dhaka University. 

According to him, the government is responsible for the education of the country's children. However, instead of fulfilling this duty, the government is exacerbating the cost of education by imposing taxes on private universities. 

"Consequently, a higher number of students will choose to study abroad, resulting in an increased outflow of the country's foreign currency. Imagine the potential savings in dollars if we were able to enhance the quality of universities and higher education within the country. Moreover, improving quality could also play a role in reducing brain drain," he said. 

Furthermore, sustainable development writer Faiz Ahmed Taiyeb highlighted the disparity in funding between public and private universities. He noted that education in public universities is entirely financed by the government, whereas private university education relies entirely on individual contributions. This discrepancy, he argued, represents a form of discrimination that is often overlooked in Bangladesh.

"When the government should pay a part of the education cost of private universities to reduce inequality, a 15% penalty is being imposed in the form of tax instead. From the point of view of the ethics of the modern state, it is not favourable to create highly educated resources in the future," he said.

The chronicle of legal battles 

Interestingly, the said discrimination was a key factor leading to the High Court's initial ruling on 5 September 2016, which declared the collection of income tax from private universities as illegal.

The ruling had come following 46 separate petitions, by 12 private universities and a student. 

The court, in its observations at that time, had said that Article 32 of the Constitution speaks of the right to life, which includes the right to education.

"As a People's Republic, Bangladesh has failed to establish adequate educational institutions for its rising citizens. As a result, the Private Universities Act 1992 allowed the establishment of private universities. Now if the government imposes tax on all these private educational institutions, it will surely increase the tuition fees of the students.

"It has created a disparity between students of public and private universities. The ultimate victims of this discriminatory action of the state are the students of private universities. It is unconstitutional and illegal," the court had added. 

However, on 9 February 2021, the Appellate Division granted leave to appeal to the state party against the judgement given in the High Court. Additionally, the NBR was directed not to collect income tax from the private universities until the appeals were disposed of.

It is following the hearing of the appeal that the recent verdict has been announced that the tax should be paid.