Impact of GST on higher educational institutes decoded
Let’s make ‘Study in India’ happen! To achieve this, the government
needs to think progressively like a business partner. TOI spoke to experts to
decode the GST impact on higher educational institutions The importance of
education cannot be undermined in a country like India, where nearly half of
its billion plus population is below the age of 25. In the years to come, the
country will need to cater to a huge demand for jobs, a challenging prospect in
an environment which could be dominated by robotics and artificial
intelligence.
Jobs will call for creative problem solving, analytics and critical
thinking. Hence, helping higher educational institutions which can impart
cutting edge knowledge, at times in collaboration with foreign institutions, is
the need of the hour.
Even as private higher educational
institutions are emerging, these are forced to continue to operate under the
umbrella of ‘not-for-profit’.
The GST Council’s decision to
continue to exempt services provided by educational institutions to its
students is a step in the right direction. To this extent, the apple cart has
not been rocked. However, services to higher educational institutions are not
GST free. Higher educational institutions will have to pay GST when availing of
a wide range of services. This dilutes the objective of keeping education
outside the GST ambit. Earlier, a vast majority of services provided to
educational institutions were classified as ‘business auxiliary services’ and
procurement of such services did not attract service tax. Then, the category of
services supplied to educational institutions which would not attract service
tax were restricted to four.
Bipin Sapra, indirect tax partner at
EY India, explains: “The first step to distinguish between services provided to
educational institutions v/s higher educational institutions, was taken in
March, much before the GST bills were passed in the Parliament”. Services in
the nature of transportation, catering, housekeeping, admissions or examination
conduct if provided to higher educational institutions were subject to service
tax. “Unfortunately, the GST Council, has continued with this. Given the
importance of higher education, in a country like ours, there is an urgent need
to revisit this,” says Sapra. Services provided to higher educational
institutions are taxable. While services provided by an educational institution
are out of the GST ambit, unfortunately the same is not the case with services
provided to an educational institution. The GST exemption on procurements is
available only to schools (from pre-school up to higher secondary school or its
equivalent). Thus, the ‘input’or supply of services such as transportation,
catering, housekeeping, services relating to admission or conduct of
examination to higher educational institutions will bear a GST levy. This will
have to be borne by the higher educational institution. As the ‘output’
(service of providing education to students) is tax free, no input credit would
be available. This partly defeats the purpose of exempting educational services
from GST. In fact, sprawling campus of higher educational institutions,
especially if these have boarders are likely to incur heavy expenditure on some
of the above items - such as security, housekeeping or catering, as compared to
schools. For instance, maintenance of laptops provided to students, or
maintenance of a swimming pool or basketball court. Since all educational
institutions operate as non-profits, so why this dichotomy? There is an
additional issue. “The impact of non-eligibility of input tax credit, is even
more pinching due to the mandatory reverse charge mechanism if the goods or
services are procured from unregistered dealers. Educational institutions
typically obtain services from freelancers such as supervisors, research
assistants, paper setters et all. Payments to such individuals would attract
GST under reverse charge - it is the educational institution which would pay
this tax and also comply with formalities of uploading documents on the GSTN
portal,” explains Sunil Gabhawalla, chartered account and indirect tax
specialist.
Australia has the most comprehensive
GST regime in the world - it covers almost all goods and services and provides
for very few exemptions. However, education largely remains GST free. Supply of
services to educational institutions are ‘zero rated’. In other words, these
institutions (as they are GST exempt) can claim a refund against the taxes paid
by them on inputs. Other countries such as South Africa also adopt a similar
norm.
Higher costs would be an added
deterrent for foreign students, who wish to study in India. Statistics drawn
from the All India Survey on Higher Education conducted by the Union ministry
of human resource development show that 45,424 students enrolled in India in
2015-16. While these students came from 165 countries, bulk of the students
were from our neighbouring countries -Nepal (21%), followed by Afghanistan
(10%) and Bhutan (6%). Compared with the outflow of students from India,
overseas - largely to USA, this seems an insignificant figure. However, it
denotes a rise of 31% as compared with numbers two years earlier. Nearly 3.6
lakh students from India are studying overseas according to the Indian students
mobility report (2016) by M.M. Advisory services. Even as media reports
indicate that the Chinese students are twice this number, this report points
out an increasing flow of Indian students to foreign countries. Higher educational
institutions in India, especially through foreign collaborations are emerging
as a more viable option for providing the same high quality, globally
recognised education.
Many institutes have tied up with
foreign counterparts for various courses, such as Bennett University’s tie up
with Georgia Tech or with Johnson Cornell. BML Munjal has a tie up with
Imperial College London. SPJIMR partners with ESB Business School of Reutlingen
University, Germany.
“Lower tax costs would enable the
educational institutions, who as non-profits earn small margins, to upgrade
their infrastructure and also reduce costs for students,” explains Sapra.
Higher educational institutions in India have the potential to attract more
foreign students and also fulfil the educational aspirations of our own
students. But for this to happen, the government needs to think like a business
partner.
Source | Economic Times | 4th
June 2019
Regards
Mr.
Pralhad Jadhav
Research Scholar (IGNOU)
Senior Manager @ Knowledge
Repository
Khaitan & Co
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