Revenue body moves to tax universities

UGANDA Revenue Authority has asked Uganda Christian University to pay corporation tax, which the university has appealed against. John Eremu and Bob Kisiki examine the impact of the demand on private higher education provision.

THE Uganda Revenue Authority (URA) is demanding sh1.3b in corporation tax arrears from Uganda Christian University (UCU), a move that has drawn an outcry from other private universities that see themselves as the next targets.

The vice chancellors have objected to the demand and urged the Government to emulate Kenya and Tanzania, where non-profit universities are exempt from corporation tax.

“We the vice chancellors of the Uganda Vice Chancellors’ Forum do stand in solidarity with Uganda Christian University and other not-for-profit universities in their appeal to receive exempt status from Corporation tax as a not-for-profit educational organisation with a public purpose,” they said in a resolution after a meeting held on March 3, 2008.

The forum brings together heads of both private and public universities. The universities have appealed to the Permanent Secretary, Ministry of Education, F.X. Lubanga, over the matter.

The Inter-university Council for East Africa (IUCEA) last year also appointed a taskforce to look into the taxation of higher education in the region. In a report presented at a meeting in Arusha, Tanzania last month, the taskforce noted that it was only Uganda levying corporation tax on not-for-profit universities.

“To tax private universities in Uganda is probably either to drive them out of business or to turn them into institutions of the wealthy elite,” observed UCU Vice Chancellor Prof. Stephen Noll.
The URA move comes hardly two years after President Yoweri Museveni promised a tax waiver to private universities. Opening the St. Lawrence schools in October 2006, Museveni said: “Plans are underway to discontinue direct taxation of educational institutions.”

Exempting the universities would parallel what is done in America, as Noll explains: “One of the successes of the US university system is that the universities – both public and private – are tax exempt. They are also not charged property tax. The US also has a charitable tax exemption. For example, if a person donates to a university, the amount spent would be deducted before his or her taxes are computed. This has encouraged well-wishers to donate to charities. Uganda could also give such incentives to finance university education.”

He adds: “It is interesting to find that here, a local institution is required to pay the tax and a foreign one is exempted. The Government could ironically be putting its own universities out of business and creating room for off-shore investors.”

Some universities have applied for exemption from corporation tax, but URA has not made a conclusive decision yet. Ndejje University applied, for instance, and was granted the exemption in 2005, but it was revoked three years later. UCU has also applied, but the URA is yet to pronounce itself on the matter. Only the URA Commissioner General is mandated to grant or reject exemption.

Ndejje University vice chancellor, Bishop Michael Ssenyimba, echoed Noll’s fears: “We thought we were providing a valuable service on behalf of the Government. But if it feels we are making profits and require that we pay corporation tax, then we shall have no alternative but to raise fees, which may deny many poor students access to university education.”

The National Council for Higher Education deputy director, Phenny Birungi, thinks that instead of levying Corporation tax on the universities, the Government should be giving them subsidies.

“Taxation will fail the universities,” he says of URA’s move. “The State should be grateful that the universities are doing what it should have done; and doing it very well.”

He says since Makerere and Kyambogo universities are embroiled in strikes, the work being done by private universities becomes invaluable. “People are voting for the universities, with their money. They should not be frustrated. If anything,” he concludes, “the Government should offer private universities subsidies.”

The 30% Corporation tax is levied on the net profit of all businesses or organisations except those listed under the second schedule of the Income Tax Act.

When contacted, Patrick Mukiibi, the URA commissioner for corporate and public affairs, said they do not discuss clients’ matters with the press. He, however, explained that any entity that meets the conditions specified in the second schedule of the Income Tax Act applies to the Commissioner General for exemption.

The organisations listed in the above table are the only ones exempted from Corporation tax under the Income tax Act.

“URA is not biased in granting the exemption, but you cannot claim you are exempt without written evidence from URA,” Mukiibi said.

Though many of the private universities are not paying the tax yet, they are wary of its introduction. The Uganda Martyrs’ University spokesperson, Innocent Erosete, said instead of the Government levying Corporation tax on universities, it should instead exempt them from cumbersome taxes like Value Added Tax on key materials necessary for the universities’ survival.

Though the Nkumba University Secretary, Joy Male, declined to say whether the university pays the tax or not, she said private universities should not be asked to pay Corporation tax. “We depend entirely on students’ fees, therefore it is unfair to the university and the students if we are asked to pay the tax.”

Dr. John Murumu of Lugazi University says URA had contacted them on the issue, but since they only opened last September, they could not discuss the matter conclusively. “But I know they are coming back to discuss it again,” he says.

The Income Tax Act provides that the income of an exempt organisation, other than certain income not related to the purpose of the organisation, is exempt from income tax. If educational institutions can prove that they are of a ‘public character’, certified by the commissioner and confer no private benefit, they qualify for exemption. Public character refers to “a body, corporate or otherwise, that performs its duties and exercises its power for public benefit, as opposed to private gain.” Such a body may be, but does not have to be, governmental.

UCU maintains that it is ‘of a public character’, and is purely non-profit motivated. But while URA agrees that UCU is of a public character, it insists the university confers a private benefit to its founding body, the Anglican Church of Uganda. The UCU charter, under Part II, entitled ‘Establishment Policy’, says: “Uganda Christian University is a private, non-profit-making educational institution established by the Church of Uganda to provide Christian-based higher education, training and research for… . the betterment of society.”

“Even though set up by the Church of Uganda,” a senior UCU official argues, “UCU does not receive any funding from the Church.” He says the university has 6000 students, who have to be fed, accommodated, given academic and co-curricular facilities. “But while (public) institutions can count on government financial help, most private institutions have to find their own ways to fund activities,” he says.

If UCU is to be made to pay the tax, the total bill will amount to billions of shillings. To pay the tax and still operate efficiently, the university would have to raise fees levels by hundreds of thousands of shillings. Clearly, this will make UCU (and other private universities) accessible to only the very rich. Ultimately, the universities would have very few students, leading to failure to operate.

Prof. Noll says: “The Government was very strategic in encouraging private universities, but it would be killing the child in the cradle with this tax burden.”

He says UCU has embarked on a number of projects, like the $3.5m library. “We charge development fees to finance these projects. UCU partners and charitable organisations in the US have pledged $1.5m (about sh2.5b) towards the library project. We also hope to raise $50,000 through local fundraisings. We shall probably take a bank loan to finance the balance. But apparently as far as URA is concerned, they are treating that as profit and want a 30% tax.”

A UCU official says their donors, like USAID, DFID and other foreign charities will be discouraged if they know that 30% of their money will be going to Corporation tax.