President Museveni inspects a guard of honour at St Lawrence Citizens High School where he suspended levying of income tax on schools
Museveni directive seen as a ploy to hoodwink school heads
Civil society activists have aised school owners not to rejoice following the recent pronouncement by President Museveni on suspending the levying of income tax.
They argue that over the last 10 years, the government has been consistent in insisting that schools must pay income tax. Over the same period, the president has also been consistent in calling off the tax. Fred Mwesigye, executive director of the Forum for Education NGOs in Uganda (FENU), argues that the president made his call with one eye on the election.
“This is only a temporary move. You can be sure that after March 2016, they will be thinking of reimposing the tax,” Mwesigye said.
Patrick Kaboyo, executive director at the Coalition of Private School Teachers Association, agrees.
“The president only spoke at the event, there was no statutory instrument or anything official in writing so, the tax is most likely still in effect,” Kaboyo said.
The two were reflecting on the events at a carefully-choreographed ceremony at St Lawrence School, Citizens campus at Maya, last week, where the president was on hand to launch the Lead Patriots Convention. The function was graced by several private school heads, who were expecting their host Prof Lawrence Mukiibi to raise the matter in his remarks.
Prof Mukiibi did not disappoint.
“In 2006, we convinced the president to drop taxes on education institutions and we were able to go miles. If taxes are reintroduced, this will deter development and expansion of quality education offered by private institutions,” Mukiibi said.
He argued that without the tax, several schools had made great progress since 2006. In response, the president claimed that the measure had not been thought through.
“I don’t know why the taxes were reintroduced. Unfortunately, I have not come with the minister of finance but I don’t think it is very crucial that education institutions should be taxed,” President Museveni said.
“Finance should have a dialogue with Education. The problem is that they are high-handed. They do not consult.”
The president made his remarks in the presence of Education minister Jessica Alupo and Trade minister Amelia Kyambadde, before concluding that school heads who had heavily invested in the education sector, should be protected because their investments added value to the country’s development.
“Prof Mukiibi has putup this entire [infrastructure] yet the children who benefit are mine. Why should you inconvenience him? He cannot construct roads but he has put up schools, reducing my burden. I now can construct more roads,” Museveni continued.
Interestingly, President Museveni also ordered the Finance ministry to stop imposing direct taxes on private schools, arguing that these institutions played a critical role in supplementing government efforts in educating Ugandans, back in 2006.
“It is purely a political statement those head teachers should not have been cheering at all, because the president was playing politics in the same way they were playing him,” Kaboyo added.
The latest decision to tax private schools most recently came up in last year’s budget speech, when the then Finance Minister Maria Kiwanuka explained her decision.
“Madam speaker, I propose to terminate the exemption on income derived by a person from managing or running an educational institution for commercial gain,” she said. “This is consistent with the principle of equity and transparency in tax regime, and broadening the tax base by bringing more taxpayers into the tax net. This measure is expected to generate Shs 15 billion.”
Not surprisingly the call prompted protest by private school heads, who complained that they were already paying too much in tax, yet they were offering a service similar if not better than what their state-supported counterparts were imparting.
There are at least 20,000 private schools across the country. Private schools, among other taxes, pay ground rent, trade license fees, local service tax fees and other fees for signposts. Consequently, most private schools charge higher fees than their public counterparts, as they are perceived to offer better services.
Private school owners complained about the suspension of the income tax waiver early this year
However, according to Kaboyo, the two sets and others are actually operating in an unleveled field. He explained that there are privately-founded schools like St Mary’s College Kisubi (SMACK) that are supported by the government and purely private ones like St Mary’s SS Kitende, all competing with purely government-founded and supported schools like Kololo SS.
“Schools like SMACK get school capitation grant to support teaching activities, school facilitation grant to set up infrastructure and most of their teachers are on government payroll, although they get a top-up on salaries from the school,” Kaboyo says. “Comparatively, a school like Kitende, whose tuition is almost at par with SMACK, takes care of its teachers and infrastructure without any support from the state – so to tax Kitende and then leave SMACK is unfair.”
However, Mwesigye believes that the justification for taxing private schools is lopsided. He says the Finance ministry is not clear on what makes a private school.
“Schools like SMACK and state-founded schools define their profit as surplus, which is not taxable, whereas Kitende would call it a profit, and get taxed,” Mwesigye says.
“They should decide if they want to tax schools and tax all of them, or abandon the measure altogether.”
JUSTIFICATION FOR TAX
Some critics believe that as much as there is confusion on what schools to tax, there is some justification for the tax. According to Kaboyo, there is an impression that some schools are purely for profit, and the owners are living off the backs of parents, paying hefty tuition for the students. And Mwesigye says this impression is misleading.
“Many operators will tell you that they have to make a choice to either offer a quality education service and forfeit all opportunities of making a profit, or offer a poor service and take whatever profits that they can,” Mwesigye says.
Michael Serunjogi, a director at St Julian High School in Gayaza, agrees. “Many of us are just getting by with the help of bank loans, which we hope we will be able to clear one day – but it is a tough existence,” he says.
Serunjogi explains that they usually seek loans to build the expansive infrastructure and buses to transport students, in a bid to attract more students, in the hope that the resultant tuition will help pay off the accumulated debts.
THE TAX BURDEN
Officials at the ministry of education indicate that they are unsure if the measure will be in the next budget.
“We are waiting for a statement or statutory instrument indicating the suspension of the tax, but as things stand, the schools should expect to pay the tax,” said a ministry official, insisting on anonymity, last week.
Across the street, in the new minister of finance, Matia Kasaija said there was no indication that there was a change in the tax regime.
“The next budget will be more or less the same as last year’s. For now, our focus is on infrastructure development so, we are looking to dedicate more funds there,” he said, while meeting MPs at parliament.
Critics say they would be surprised that a measure intended to gain the government much-needed revenue would be derided by the president.
It was hard to ascertain if any of the school heads were convinced by the president’s call to suspend the tax. None of them was willing to comment on the president’s directive.
Source : The Observer