Higher education needs touch tax, not knockout punch
Senior Advocate and scholar Parliamentarian K Parasaran during his five-minute submission in the Rajya Sabha debate on the GST Bill showered intellectual brilliance on both the law and dharma. Tracing the etymology of the word tax from the oriental hemisphere, Parasaran quoted Sage Valmiki and Poet Kalidasa—both capping tax rate to 16.66 per cent. He also traced the etymology from the occidental hemisphere that defines tax as a ‘sovereign touch and not a squeeze’. The arithmetic of 16.66 per cent is still a mathemagical equation with multiple solutions as GST rates differ for different goods and services (GST bill defines service with ambiguity). However, the touch part is delivered with a punch in so far as higher education is concerned. Here is why:
Till 2013-14, educational institutions were totally exempted from service tax under Section 66D of the Income Tax Act. When an attempt was made to introduce service tax in educational institutions for all services, there were representations based on which ‘auxiliary educational services’ were alone exempted, leaving its definition wide and open, leading to avoidable litigation. Pursuant to 2014 Union Budget, vide Notification No 06/2014—Service Tax dated July 11 2014, the Ministry of Finance clarified and restricted the exemption to some services provided by educational institutions to its students, faculty and staff. The four auxiliary educational services were distinctly identified as (i) transportation, (ii) catering, including any Mid-day Meal scheme sponsored by the government, (iii) security or cleaning or house-keeping services, and (iv) services relating to admission, or conduct of examination by such institution.
Whilst so, a recent Finance Ministry Notification No 10/2017-Service Tax dated March 8 2017, issued by the Department of Revenue, resulted in a binocular cataract cloud which was expected to be cleared in the GST Rates Schedule. This aberration was cleared in one eye leaving the other clouded, as the GST Rates Schedule provided exemption only to the four auxiliary services provided by and to institutions up to high school level. The fallout of this discrimination is a huge setback to higher educational institutions, which were waiting for a much-needed impetus to progress.
The Hon’ble Prime Minister of India has repeatedly expressed a desire to nurture world-class universities in the country, and has encouraged many progressive public and private institutions to move in that direction. However, denial of full GST exemption to higher educational institutions is not in alignment with this visionary policy of the PM. Higher educational institutions, with a view to reducing unit cost of education to claim exemption, will be forced to run their own transportation, catering, house-keeping, security services, transforming them into world-class bus operators, caterers and housekeepers due to dilution in focus. There will be a loss of precious resources deviating from the core focus of research and quality education, towards fleet management, grocery purchase, etc.
This affects leading public and progressive private institutions that currently outsource these activities to retain core academic focus.If these services are outsourced to third parties, the flip side will be an increase in the unit cost of education, making it inaccessible due to its unaffordability. It will have a direct bearing on the Gross Enrollment Ratio, which is a key social metric for a nation’s socio-economic development.
The final hope before July 1 is that the GST Council extends exemption to higher educational institutions for auxiliary educational services provided by third parties as well. In short, a touch tax such as GST must not deliver a knockout punch for higher educational institutions, but stretch a warm handshake while ushering the nation into this welcome era of uniform taxation.
S Vaidhyasubramaniam
Dean, Planning & Development, SASTRA University
vaidhya@sastra.edu