Private education is not a cash cow

Mar 06, 2017 Features / Columnists, Peeping Tom

Politics and taxes do not mix. The politician makes the tax laws; the tax man implements these laws. Any other relationship is bound to become toxic.
This is why Guyana must be worried when in the midst of a controversy between private scho0ls and the government over Value Added Tax (VAT) the GRA has reportedly said that it will be taking action against tax-dodging private schools.
The GRA must be careful to preserve its independence. The timing of its announcement against non- compliant private schools will anchor perceptions and engender fears that the GRA is being used to go after persons who have been critical of the government. The GRA needs to disabuse this perception and stay clear of being embroiled in the ongoing dispute over VAT being applied to private education.
The GRA will open itself to criticism that all along it was not doing its work against these defaulters, but now that the government is at odds with private education, defaulting schools are be targeted. The GRA must stay clear of being caught up in this sort of problem and concentrate on its role of applying the country’s tax laws evenhandedly.
The fact that some private schools may have defaulted in filing their tax returns, does not establish a basis for them being taxed. The tax on private education is a tax on a service and the merits of this decision are being contested at the moment. Those persons who are picketing the GRA over the taxes should be told that they are at wrong. The GRA is not responsible for the imposition of VAT on private education. The Ministry of Finance is the agency where the pressure should be applied.
The Ministry of Finance is now attempting to justify the VAT on private education because of the revenue gains which will be had. It has argued that the country stands to gain more than 300 million dollars in taxes since the top eight private schools have a combined income of two billion dollars each year. This is how the figure of 300 million is arrived at, since 14% of two billion is around that sum. When you add in all the other private schools, including those not approved by the Ministry of Education, then the cost of private education can end up running as high as ten billion dollars, which means that the VAT can boost the tax coffers by as much as 1.4 billion dollars.
The downside of the argument is of course that the VAT on private education based solely on its revenue potential effectively takes 1.4 billion dollars out of disposable income, which will be spent by consumers in the market supporting thousands of small businesses and workers.
The VAT on private education is therefore displacing the private sector activity and particularly small-scale businesses, the very businesses which the government hopes will generate the jobs which it promised to the people when it was campaigning for office.
The two billion dollar tuition is being waved around. It can have the effect of making the ordinary citizen believe that the private schools are flush with money and that since many of them are not tax compliant, that the VAT is justified.
The GRA does not need a tax on VAT to make the schools tax compliant. The GRA has the means to ensure that those private schools which owe taxes are reminded of their tax obligation.
VAT is a new tax in so far as private education. It is borne by consumers and not the school owners. If some private schools are not tax compliant, then VAT is not going to make them tax compliant. It will only increase the burden on parents who will have to find more money to pay school fees.
The two billion dollars in income is not profit. It is income from which expenses have to be paid. The private schools have to pay its teachers. They are operating out of buildings which cost millions and for which loans had to be taken and payments made each month to the bank. They have ancillary staff to be paid. They have overheads to be paid.
Private education is not a cash cow. The government should not be milking it.

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