Taxing profits of school owners should not affect school fees
Publish Date: Sep 05, 2014
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By Cyprian Chillanyang

The recent tax amendments for the 2014/15 National Budget proposed the termination of Income Tax exemption on educational institutions in a bid to raise revenue. 

The eliminated exemption previously provided for under Section 21 of the Income Tax Act was on income derived by a person from managing or running an educational institution for commercial gain.
I wish to add my voice to this ongoing debate surrounding this particular tax proposal.
Much as the debate has been angled to assume that this is a tax on school fees, it is on the contrary. This is a tax on profits made by school owners. School owners like any other person who earn income are required to pay tax when they make profits.  This does not apply where they have made losses. 
Firstly, it is only natural in our economy that any person who earns income from business, employment or property is required to pay income tax. This is the practice world over; and in fact school owners in Uganda have been paying taxes. 
In 2007, as a way of boasting investment in Education, Government came up with a policy to exempt schools from income tax.  The result was an increase in the number of primary, secondary and tertiary educational institutions. This was a success. The time has come to retire this exemption and allow fairness across the economy.
Secondly, the resources need to run government programs have continued to grow.  The introduction of this exemption did not bring a reduction in school fees, instead school fees continued to rise even when the exemption subsisted.  In the process, the revenue that was foregone by government was entirely benefiting school owners.  It is therefore justified for government to claw back on this revenue in order to finance the national budget.
Even when there was no such tax, school fees remained high. This presupposes that there are a number of factors other than tax that affect the school fees we pay. 
However, this tax being a tax on the profits of the school owners has no way of affecting school fees.   It is paid from the profits that the school owner puts in his pocket (after deducting all his / her expenses).  There is therefore no way this can lead to increase in the cost of running school and hence school fees.    
It would be an apparent exploitation if the school owners choose not to pay their taxes and instead shift them to the parents by increasing school fees.
In order to comply, school owners should apply to Uganda Revenue Authority for registration and be able to submit their income tax and Pay As You Earn returns as is required by the law.  It also means that schools should keep proper books of accounts to allow for easy verification.
The writer is the Assistant Commissioner Business Policy, Uganda Revenue Authority (URA)

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