The freeze imposed by the High Court this week on the 7.5% VAT on tuition fees at English medium school, raises some important policy questions for the government to consider.
On the face of it, the levy appears discriminatory. Public policy would seem better served by ensuring that all private schools properly re-invest their surpluses in improving the education they offer, rather than by imposing extra taxes upon them.
More broadly, as a matter of general policy, it is in the public interest to consider taxing public goods such as education as generally less desirable than taxing public bads such as pollution.
We believe it is important for the government to take both these factors into account when responding to the High Court’s decision and consider its response as part of a wider review of taxation policy in the country.
Clearly, it is in the national interest to strengthen the nation’s tax base. Bangladesh’s tax-GDP ratio is one of the lowest in the world and all indicators suggest this is still not keeping pace with current economic growth rates.
It is an important goal to bring more people into the system as the tax base is too small to be efficient, with less than 2% of the population paying income tax.
Broadening the tax base is essential to help make the government more accountable for the delivery of services and ensure more money is available for public services.
As part of reviewing ways to strengthen the nation’s tax base, the government needs to look beyond headline tax rates alone. It should look at ways of progressively reducing taxes on public goods such as education to help increase public engagement and support for broadening the tax base overall.
It must also look at comprehensively reforming overly complicated rules on imports and foreign exchange to stop them encouraging or facilitating avoidance and corruption.
Similarly, the government should also look at ways of progressively increasing taxes on public bads such as pollution. This could be done in part by cutting artificial and costly subsides to fossil fuels. Such changes would incentivise public goods by rewarding responsible businesses which are better at managing their environmental impacts.
Making taxation policy more rational and better targeted is important to help increase public support and ensure higher long term tax revenues.
Source: Dhaka Tribune
