VAT ON PRIVATE TUITION…Fees of just eight top private schools exceed $2B annually – Finance Minister

Mar 03, 2017 News

---

– GRA boss says he’s going after tax-evaders

By Kiana Wilburg

When it comes to the contentious 14 percent value added tax (VAT) on private tuition, Minister of

Finance Winston Jordan maintains that the tax is not unreasonable. In his view, citizens would acquiesce with this move if only they would take a step back and consider some crucial yet “startling” facts.
At a press conference yesterday, Jordan revealed that there are only 54 private schools registered with the Guyana Revenue Authority (GRA). But there are far more than this in and out of Georgetown.
In fact, the 54 schools only represent 57 percent of the private schools that exist in the country.
Of those 54 schools, Jordan said that only 20 percent or 11 are recognized by the Ministry of Education. Ten percent of those private schools are registered as non-profit organizations, while 14 percent are registered as profit-making entities.
Providing further statistics, the Finance Minister said that 26 percent of these institutions are registered for, and are already applying the VAT for some of their services and sale of zero-rated items.
The economist said that both categories provide educational services at competitive rates and the tuition fees range between $144,000 and $300,000 depending on the grade level of the student.
Jordan added that in many cases, it has been determined that the fees payable to the schools exceed those that are even charged by the University of Guyana.
Significantly, Jordan said that the total tuition fees charged by the top eight of these private institutions exceed $2B annually. “So 14 percent of that top eight gives us roughly $280 million to $300 million in VAT,” Jordan explained.

In this regard, the Finance Minister said that these fees do not include fees charged for other services offered by these institutions such as extra lessons, coaching fees, uniforms, books, lunch and after care.
The Finance Minister maintained that at the end of the day, citizens still have a choice. He added, “And you can’t say that the Government is circumscribing your choice by putting a tax on private tuition. I don’t see how that can happen, you still have the choice…Even if the government didn’t put a tax, by the end of this semester or the next, the fees go up…”
Jordan also addressed the argument of the “plight of the poor students who attend the private institutions.” In this regard, the Finance Minister said that these schools can, for example, follow in the footsteps of Guyana Telephone and Telegraph Company and the Cheddi Jagan International Airport, both of which choose to absorb the VAT.
He said that schools could even isolate the ‘poor students’ and find a creative way by choosing to “carry all of the VAT or carry part, and the parent carries another part”. He added that these private schools can work out a deal for “poor students”.

NON-COMPLIANCE
The Finance Minister also noted that there is a high level of non-compliance by these institutions – both in the deductions and payment of PAYE from their employees and submissions of their employer’s returns.

He said that there is also a high level of non-compliance in the timely submission of the required Income, Property, and Corporation returns and the payment of taxes of these institutions.
He said that teachers in many instances are treated as contract employees and the employers are not deducting the appropriate PAYE and NIS from their salaries.
Jordan asserted that there are also occurrences of under-declaration of income and inflated expenditure and in some instances, payments are made to individuals other than the institutions to facilitate these under declarations.
In the case of Not For Profit (NFP) Institutions, Jordan revealed that no accounts have been submitted to GRA by these institutions, which is an original requirement to be given NFP status.
“In light of the forgoing, it is clear that the private educational institutions can absorb the VAT without passing it on to the students. It should also be noted that parents who made advance payments during the year 2016 or January 2017 are not required to make additional payments to offset the 14 percent VAT which is now applicable on the supply of private educational services,” the Finance Minister said.
He added, “Owners of private educational institutions are also reminded that they cannot charge clients VAT, unless the institution is registered for VAT, and their current earnings meet or exceed the VAT threshold of $15M annually”.
Jordan said that to ask government to remove the tax, which was carefully thought out and is projected to bring in over $350M, is to request it to look at other areas at a time when Guyana already has to borrow some $38B to support its budget.
“It is not that we have a fully financed budget from our taxes. We are borrowing. So either we upturn our economic programme which has consequences or we continue to go on this path and do whatever adjustments we will require to be done so that we all can coexist, so to speak.”
The Finance Minister was subsequently asked to say if government could have considered pressing the schools to pay up their taxes and be more compliant instead of instituting the 14 percent tax.
In this regard, Jordan said, “What I was recommending was only a way out. I don’t want to suggest that VAT on tuition fees was meant to be absorbed by the schools.”
He added, “The VAT on the tuition fees is part of our broad initiative of widening the tax base. I am saying that to the extent that there are ‘poor’ students attending private institutions, one way could be to have a system worked out with the school so that the school absorbs it and then claim a tax deductable expense or the school pays part and the parent pays part…”
As for those non-compliant private schools, GRA Commissioner-General, Godfrey Statia said that some of the schools have been recalcitrant since 2012. Statia said that the revenue collection body has actually started the process of demanding that their returns and accounts be submitted.
Minister Jordan added that once given fair notice or warning, NFP institutions can lose their status or face sanctions if they fail to file their annual returns and meet other required provisions. He said that schools which fall under the NFP status include Marian Academy and Indian Education Trust College.

TAX BURDEN
The matter of tax on private tuition was also brought up during a press briefing that was held yesterday by Minister of State, Joseph Harmon, at the Ministry of the Presidency. There, he disclosed that the Minister of Finance briefed a Ministerial conference on the issue.
Harmon said that the conference was informed by Jordan that stringent measures had to be adopted to ensure future benefits and that the additions to the VAT regime were necessary, because of the country’s difficult financial circumstances, and the need for a clear and leveled playing field to be established where taxation is concerned.
He said that Jordan spoke, too, about the coalition’s promise of a reduction in VAT. In spite of this commitment, Harmon said that the ministerial conference was told that VAT could not be lowered significantly now, due to unexpected expenditures facing the government such as legal settlements and funding that had to be given to the sugar sector.
With this background in mind, Jordan gave an overview regarding VAT on private tuition. Harmon said that it was agreed that the government would review the matter, with the Finance Minister delivering a final statement after that review.
He said, too, that the minister was asked to look at the manner in a holistic way and speak with some of the owners of the private schools to see how best it could be reviewed.
“Because what we found was that the tax was unfairly borne by the parents and the students and not by the schools. So it was something that was passed directly on to the parents. We felt it was an unfair burden for just the parents to bear on this tax. We believe that the burden of taxation must fall evenly. It must not just be on the parents of those children who attend these private schools. The private schools themselves must also bear part of that responsibility.”

MATERIALS
Prior to the 2017 budget, the Finance Minister explained that educational services enjoyed zero rated status. He said that this enabled the institutions registered to pay VAT being refunded Value added Taxes. For last year alone, Jordan said that GRA ended up refunding $150M.
Now that these items are exempt, the Finance Minister said this means that the institutions will purchase them at a lesser cost. He said it is hoped that the benefits will be passed on to the students in the form of reduced cost for these items.
Jordan said that the range of items under education which do not attract VAT anymore include chalk, chalkboard erasers, children’s picture books, colouring books, dictionaries, educational charts , file paper, graph books and graph paper geometry sets, pencils, novels, religious books, student paints, all text books and erasers, lunch kits, notebooks, crayons and sharpeners.

---

---