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Dhaka Tribune

15% tax on private varsity: Trustees plea to president, UGC says review needed

  • Trustees raising concerns regarding the legality of the judicial move
  • 'Subjecting institutions governed by the Trust Act to income tax is contrary to the law'
Update : 07 Mar 2024, 12:20 AM

In light of the recent verdict by the Appellate Division of the Supreme Court on February 27, mandating all private universities in the country to pay a 15% tax, trustees of these institutions are raising concerns regarding the legality of the judicial move.

They argue that subjecting institutions governed by the Trust Act to income tax is contrary to the law. However, the University Grants Commission (UGC) suggests that the matter should be deliberated on with the government for a thorough review.

Amidst these legal complexities, the Association of Private Universities of Bangladesh (APUB), representing trustees, has appealed to President Mohammed Shahabuddin for guidance and counsel.

In a petition signed by Sheikh Kabir Hossain, chairman of APUB, on March 3, it is stated that a writ appeal filed in 2021 concerning the imposition of a 15% income tax on non-profit private universities has been recently resolved. The decision deemed the imposition of tax on institutions managed by trusts legally inconsistent. This stance is supported by the fact that private universities operate as non-profit higher education institutions under trusts established according to the Private University Act 2010.

The petition also references Section 44 (7) of the Private University Act 2010, stipulating that funds from the university's general fund must only be utilized for the necessary expenses of the university. 

Thus the directive to pay income tax would pose a dilemma for the university. As per prevailing laws, entrepreneur-founders are prohibited from receiving funds from the university, making any payment of income tax or other expenditures from the fund a violation of the law.

In this regard, UGC Chairman (additional charge) Prof Muhammad Alamgir said since the Supreme Court has made a ruling, it must have considered these issues along with the Private University Act. 

However, he emphasized the need for a review, suggesting that discussions with the government are imperative. “Only university administrators can accurately assess the impact of such income tax. If they can present their observations effectively, they can discuss with the government beforehand for consideration in the review process.”

In response to the query regarding the feasibility of imposing taxes on educational institutions governed by trust laws, Advocate Khan Babul Hossain, an income tax lawyer, said that if an institution generates profits, then the issue of income tax would indeed arise. 

However, in the case of institutions under the administration of a board of trustees, where there is neither profit nor loss, the matter is different. Nonetheless, it remains obligatory to submit successive accounts and returns.

Similarly, income tax lawyer Mohammad Siraj Uddin pointed out Clause 12 of the Sixth Schedule of the Income Tax Act 2023, which exempts voluntary contributions received by religious or charitable institutions used solely for religious or charitable purposes from income tax.

He emphasized that although the law mentions charity organizations, private universities in Bangladesh are operated by trusts. 

Referring to Section 41 of the Private University Act 2010, he highlighted the sources of income for establishing or managing private universities, indicating that these institutions are typically funded through donations or contributions from individuals or organizations.

Furthermore, the lawyer clarified that private universities charge fees for educational programs, and the law explicitly outlines the allocation of these funds. Such funds can only be utilized in UGC-approved sectors, emphasizing the charitable nature of these institutions. Therefore, trustees do not have the opportunity to extract any profits, as any surplus funds are earmarked for educational development. Consequently, there is no legal basis for levying taxes on private universities in this context.

Dr Chowdhury Mofizur Rahman, vice-chancellor of United International University (UIU), said: “Among many private universities, only a small fraction, perhaps 10-15%, are economically stable. Others are struggling to stay afloat because they have to fund their permanent campus on their own. You know how much land costs.”

According to him, around 90% of private universities are grappling with financial difficulties, making them highly vulnerable. 

In such a precarious situation, the imposition of a 15% income tax would exacerbate their financial woes, potentially leading to increased tuition fees for students, the UIU VC said. 

Dr Rahman argued that while taxation may be acceptable for profit-driven organizations, imposing income tax on non-profit institutions seems contradictory.

Responding to inquiries about how income tax would apply to non-profit organizations, UGC Chairman Prof Alamgir said: “I don’t know how it will be implemented. First, we need to see if any not-profits pay tax. Non-profit organizations typically reinvest their profits into related activities. It means taxation may not align with their operational model.”

In contrast, National Board of Revenue Member (Tax Policy) AKM Badiul Alam clarified that if a non-profit organization shows a surplus in its annual balance sheet, it is liable to be taxed. 

He emphasized that only donations used for religious and charitable purposes are exempt from taxation, referring to a judgment by the Appellate Division of the Supreme Court for further details.

The private university association has sought the assistance of the Minister of Education and the chairman of the UGC in resolving the issue. 

Notably, the NBR had previously issued two separate notifications in 2007 and 2010 imposing a 15% income tax on private universities. 

However, following legal proceedings initiated by various private universities and students, the High Court invalidated these declarations in September 2016, citing the exemption of non-profit private universities from taxation under trust.

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