The National Board of Revenue (NBR) yesterday issued an extended explanation clarifying the legality of the imposition of 7.5% VAT on private universities, medical and engineering colleges.
The tax authorities clarified the legality of the Value Added Tax Rules, 1991 in the wake of confusion created among different quarters.
The NBR said it has imposed the VAT on private education to meet the increased revenue target required for the development of the country.
According to section 5 (4) of the rule, in the case of provision of services, VAT shall be imposed on the total receipts: provided that, in respect of any specific service, the board may, by order, determine the Value Added Tax on the basis of actual value addition or determine the VAT based on specific rate of value addition by notification in the official gazette.
The “total receipt” means the total amount of money received or receivable by any taxable service provider in exchange of his service rendered including commission or charges, excluding VAT, according to section 2 (X) of the rule.
The price of the service can be determined in two ways – VAT inclusive price and VAT exclusive price, the section 23 of the VAT rule shows. If the cost of service and the amount of VAT is not mentioned separately, the cost of service will be considered as VAT inclusive price.
The section 23 (4) reads: “Where the amount of value added tax is not shown separately in the invoice given by the supplier of goods or the renderer of service, the amount of the value added tax payable shall be determined by multiplying by 15/115 the gross sale price, inclusive of the amount of value added tax due or received.”
In this case, the university authorities are considered as “service receiver” and tuition fee is the “cost of service” paid by the students, the clarification reads.
For example, if a university collects Tk1 lakh from a student as tuition fee, it will be considered as VAT inclusive price and the VAT payable would be calculated on the amount.
The government has slapped 7.5% VAT on private universities, and medical and engineering colleges for fiscal year 2015-16. As it is now applied, the universities will collect the money as VAT inclusive price and have to deposit the VAT to the government exchequer.
Now, the universities are responsible for paying the VAT that is already included in the current tuition fees.
As the VAT was included in the existing tuition fees, there was no scope of increasing the cost of studying at private universities, the NBR said.
Protests against the controversial 7.5% VAT have been going on ever since it was first proposed under the budget for the ongoing fiscal year.
