Finance Minister Maria Kiwanuka announced new revenue measures in the national budget of 201415.
One of them was the reintroduction of tax on profits made by owners of private schools. But these owners have since been agitating for removal of the proposed tax. A recent article in The Observer newspaper titled “Private schools intensify fight against taxes” by Yudaya Nangozi highlights a number of issues the owners are fronting in support of their resistance.
Through the National Educational Institutions Association-Uganda (NPEIAU), the owners further make mention that they are already paying 13 forms of taxes and, should not pay any more. I wish to respond to these issues and to explain the proposed tax.
Whereas it is not clear what 13 forms of taxes they are referring to, it is a fact that all businesses in Uganda pay certain levies to different statutory bodies that facilitate their running. For example, they pay for licensing, and registration among others. These fees are not necessarily central government taxes.
The proposed tax is, however, a national tax and it is to be imposed on profits made by owners from running these educational institutions. This is not necessarily a new tax altogether. It was in the tax law until 2007, when it was removed. It is just being reintroduced and is only payable if the owner makes profits.
But what is a profit? Profit is the excess of revenue from business over expenditure in generating that income. Revenue for schools is largely generated from school fees. Their expenditures, on the other hand, relate to the education of students including staff salaries, chalk, feeding and maintenance of the school.
Although running a school also serves the social purpose of educating our community, the owners of private schools would not venture into such role without a legitimate expectation of a decent reward – making profits. It is true that some schools may have been set up for purely providing a social service, without a profit motive.
This is particularly true of mission or religious schools and other such charitable organisations. If, indeed, profits or surpluses are not made by these schools, then no tax would apply. However, in real life, a profit will arise. This profit is what is taxable at 30 per cent and applies irrespective of whether the motive was a profit one or not.
The profit motive in running a school is not different from the profit motive in running a retail shop or a restaurant, a clinic or any other businesses. Across the country, businesses are taxed on their profits. On top of that, some businesses are further required to charge tax on their sales (VAT).
Given that they are excused from charging VAT, why would schools want to be excused from income tax as well? What should retailers say for example they run smaller businesses than schools, but they are also required to charge VAT if they are dealing in taxable supplies and their annual turnover is Shs 50m. What should private clinics say they equally provide an essential service and incur costs in delivering this service?
Employees are paying this tax every month and it is deducted from their salaries. For example, a university graduate who gets a teaching job and earns Shs 300,000 a month is subject to tax. But the school owner who employs this young graduate goes ahead to earn, for example, Shs 5m from the school and does not want to be taxed? This graduate is the one that does the actual teaching and is the person that helps the school owner to earn a profit.
A good tax system is one that should be fair and equitable. The decision by government to reintroduce tax on school owners’ profits was in effort to improve fairness. I have one question for the schools owners. When this tax was removed in 2007, did reduce the school fees? Therefore, the reintroduction of this tax should not lead to increment of school fees like John Bosco Mujjumba, the NPEIAU chairperson, is suggesting.
The author works with URA’s public and corporate affairs division.
Source : The Observer