Dr. Dhiman Chowdhury :
The government recently announced Value Added Tax (VAT) @7.5% of tuition fee of the students of private universities. This caused agitation from the students. The academics and political parties are also criticizing the government tax policy. I would argue that the issue is neither ‘no tax’ nor ‘yes tax’. It is rather somewhere in-between.
1. History and philosophy of tax. Majority people particularly in the developing countries do not have the ability to pay tax whether it is income tax or expenditure tax (VAT is an expenditure tax). Rich and those who have the ability to pay provide the most of the taxes.
2. The better life of have-nots depends on the tax payment records of the rich. It is a universal theory and policy to collect tax first from the rich and those who have the ability to pay. One of the major reasons for underdevelopment is that the government could not collect even the minimum and legitimate taxes from this class of people. Around 11% tax on GDP in Bangladesh is one of the lowest in the world. The world average is around 27%, in the industrialized countries it is 29% and even in the South-East Asia it is 18%.
3. In a democracy, the government cannot forcibly impose any tax on people. The benefit of doubt generally lies in the hands of the people. The payment of tax is not always economic alone, it is also a cultural phenomenon. It dependents on peoples’ taste, education and values. Continuous discussion and negotiation is necessary in a good tax system.
4. A tax never settles in the beginning year. A tax is always hindered by some imperfections: equity issues and compliance problems. Gradually over the successive years the imperfections are minimized through discussions and negotiations.
5. Education is not the only rights. Food, shelter, health and security are also basic constitutional rights all of which are contingent on the payment of taxes by the rich. All these rights of people are largely absent in many developing countries largely because the rich did not pay their due taxes.
6. The government has made a mistake. It has tried to generalize that all students will pay the tax. It did not realize sufficiently that 60 to 70% of the students do not have the ability to pay.
7. Agitating students did the major mistake.. They are not trying to understand that tax in developing countries mainly come from the rich 20 to 25% people. They are generalizing ‘no VAT on education’. As a result, the rich and those who have ability to pay escape from being taxed. By doing this they themselves are working against their own interests. Common peoples’ interests always so much depend on rich peoples’ tax payment.
8. What is ability to pay? Nowadays with the help of information technology, how rich I am is easier to calculate. My income records are available with the tax office, my savings certificates are with the Bangladesh Bank, my apartments are duly registered. My own rough estimate right now about who has the ability to pay is 1 million taka or above a year.
There is always scope for discussion and negotiation about this amount. Government should say that those who have 1 million taka or above will pay VAT rather than generalizing VAT on all students.
9. Some people are confusing tax issues. They are saying why on education? Why on private universities? Why not on income? Tax is relatively a complex issue. It requires expertise and broader knowledge of economics, accounting, history, sociology, finance, government fiscal position and world experience.
Tax issues always need a gradual process. Somewhere the government has to start. Gradually, the rich in the public universities would be included. More and more products and services will come under the tax net. English Medium school students are paying VAT. Private universities are paying income tax. Take the history of VAT. More and more products and services are being added every year. No tax is perfect. Since one tax is difficult to collect government has to introduce another tax.
10. But not by punishing the rich. Only those who have the ability to pay will pay. And it is no longer that difficult to know who has that ability. It requires a transparent administration. It is a matter of understanding, discussion and negotiation. In the developed countries, more and more people are participating in tax revenue of the government.
(Dr. Dhiman Chowdhury Professor of Accounting Dhaka Unversity [email protected])
