Experts fear pricier education as source tax on income of univs, other edu institutions doubled

Education may become even more expensive after the government proposed raising the source tax on income of universities and other education institutions to 20% from 10%. 

Finance Minister Abul Hassan Mahmood presented the budget in front of the parliament today (6 June)

The new tax hike is in line with the National Board of Revenue's to collect a substantial amount of revenue through source tax, targeting over Tk16,000 crore in FY25, a decision already communicated to the International Monetary Fund (IMF).

Currently, public universities and educational institutions under MPOs pay a 10% source tax on their interest earnings from savings.

However, primary schools will see Tax deduction at source (TDS) within the range of 10%.

There are about 57 public universities operating in the country, while the number of schools under MPOs is over 29,000.

Experts have voiced fears that increasing source tax may become an indirect tax and ultimately be passed on to consumers.

Speaking to The Business Standard earlier, Dr Ahsan H Mansur, executive director of the Policy Research Institute (PRI), said, "Most of the country's source tax comes from wages and salaries. However, in Bangladesh, it mostly comes from transactions, which are treated as a minimum tax."

He added, "When any TDS cannot be adjusted, it is ultimately passed on to the consumer as an indirect tax. In Bangladesh, most of the TDS cannot be refunded or adjusted, which may ultimately lead to an increase in product or service prices. It's a distortion of the standard tax system, and the NBR seems to choose this as an easy way."

The NBR collected over Tk1.12 lakh crore in income tax in FY23, with more than 50% coming from tax deduction at source. The revenue authority also collected about half of the value-added tax (VAT) through at-source deductions, known as VAT deduction at source (VDS).