As a concerned party, I read with much interest Augustine Ruzindana’s opinion in the September 12 Daily Monitor titled “Taxation of private schools and paraffin another burden on the poor”.
The justification of the initial exemption was to encourage investment in the education sector, for which objective Mr Ruzindana made a compelling argument in his article.
As a private educational institution, my school took aantage of the tax exemption to invest in the facilities of our college. However, just like other institutions, the sudden reintroduction of this income tax has made it very difficult for us to complete our plans. Therefore, there should be a differentiation between not-for-profit educational institutes (such as faith based institutions) and commercial educational institutions.
Also, it is important to note that the education sector has been hit by other tax changes in the budget. VAT introduced on items such as computers, insurance and educational printing services are real additional costs to educational institutions.
Together with other general incremental costs contained in the budget, they will certainly reduce profits and surpluses available for future reinvestment. These taxes could put some institutions in a position that will necessitate a reduction in their service quality or increment in school fees for them to remain sustainable.
However, if tax must be levied, then I suggest the responsible body should levy separate taxes on profit-minded institutions from those whose focus is mainly investing in providing educational services, so that taxes may be fairly levied.
I also propose that the income tax exemption on educational institutions is extended for two years, to give those institutions which have planned to invest their surpluses in improving education services time to complete their projects.
For those institutions which distribute their profits by way of dividends, a withholding tax rate should be set to make it equitable with other profit making institutions.
For example, if a commercial enterprise makes a profit of Shs10m, they will be subject to income tax of 30 per cent (that is Shs3m) leaving them with a distributable profit of Shs7m.
If this is all distributed to their shareholders or owners by way of a dividend, it would be subject to 15 per cent withholding tax on the recipients.
Thus, genuine investors in the educational sector who are investing all or most of their surpluses into improving their services will be able to proceed with their plans, and have time to adjust before the new tax regime comes into force, and others who wish to take profits out of the business will pay tax at an equitable rate.
Management and Accountancy Training Company Limited
SOURCE: Daily Monitor