Degree of Thought - GST

GST’s Impact on Higher Education – Amar Ranjan Dey, HoD, Department of Commerce & Management

Amar Ranjan Dey

In India, education is provided both by public as well as private sectors. The exemption under GST has been granted for pre-schools till higher secondary education. Since universities and other advanced educational institutions have not been mentioned in the exception list, 18% GST is expected to be levied on this. Weighing the pros and cons of GST, this week’s writer takes a closer look at its impact in the Higher Education sector.

GST’s Impact on Higher Education

Goods and Service Tax popularly known as GST is becoming a two year old baby at the end of June this year, after its implementation on 1st July, 2017 by the Government of India. Both Direct Tax and Indirect Tax accumulates the sources of revenue for the Government.So, it is the sole responsibility of every individual, firm or corporate to pay tax obligations as per law of the country. On the contrary, our country is notorious for its complex tax system. Sometimes, it becomes impossible to navigate through various direct and indirect taxes for new businesses and start-ups. Therefore, with a view to alleviate this problem, Goods and Service Tax was launched as one of the biggest tax reforms in the country after Independence. It is also aimed to be a game changer for India’s economy. The present GST replaces the indirect taxes levied by the Central and the State Government and streamlines into a single unified tax system. The main expectation from this system is to abolish all indirect taxes and only Goods and Service Tax will be levied. Taxes under Goods and Service Tax are levied on goods and services. Any person who is providing or supplying Goods and Service is liable to charge GST except with few exceptions. In the existing tax system, there were so many types of taxes levied by the Central Government and the State Government. For purchasing goods and services, we had to pay Value Added Tax (VAT); for watching movie, we had to pay Entertainment Tax; for producing or manufacturing goods, we had to pay excise duty and so on. As a result, there are lots of chances of a cascading effect i.e., double taxation at every step of supply chain and businessman were not allowed to take tax credits. Since GST replaces many cascading taxes, the common man will benefit on its implementation.

On 27th May, 2017 Nagaland also joined the rest of the Indian states in passing the Goods and Service Tax (GST) Bill. The Bill was introduced by Chief Minister Dr Shurhozelie Liezeietsu who was also holding the finance portfolio then. Initiating a discussion before passing the bill, Chief Minister Dr Liezeietsu said that the GST regime will open a new era in the indirect taxation and administration in the country. He also added that the idea of the new GST regime is to make the entire system of indirect taxation more transparent, more effective and easier to implement. In the present tax regime, he said, if all the sale happen to be within the state, there is some relief in the form of value added tax wherein one is allowed to take the credit for the tax already paid in the previous transaction.

As a matter of fact, the consumer state like Nagaland is benefiting more in comparison to the existing indirect tax regime. This is because the present tax system is destination based where the destination states receive the tax revenue, whereas the manufacturing or producing states receive the profit on goods sold. Thus, increase in profits will help increase consumption in the state and increase in consumption will have more tax revenue. For example, if goods are sold from Gujarat or Maharashtra (the producing states) to Nagaland (the consuming state), Gujarat or Maharashtra gets the profits and Nagaland keeps the tax revenue. So, Gujarat or Maharashtra with its profit will consume more goods and Nagaland will earn the GST revenue on these goods. Both states end up happy.

As per the recent PTI reports on 11th November, 2018, Nagaland along with five more states i.e., Mizoram, Arunachal Pradesh, Manipur, Sikkim and Andhra Pradesh are facing revenue surplus in the current fiscal where remaining 25 states are staring at a revenue shortfall and have to be compensated by the centre. One of the main reasons for revenue surplus is destination based principle of current tax regime. Inspite of many positive outcomes with the implementation of GST, it will prove a disappointment for the students studying outside the region or even within the region. In many ways, the GST raises the cost of education and as such most parents will have to shell out more for studies to their children. The area where the students need to levy more tax in the current tax regime is on the services offered by educational institutions. This would pertain especially to educational institutions that hire services like security, transportation, catering and housekeeping from third party service providers. The students will also have to pay more for laundry, food in hostel mess, stationery and other services and products they buy on the campus. The present tax regime will levy 18% GST which will reflect in higher fees. For example, suppose a student who paid Rs 1 lakh in a year for a course in a top college, he had paid Rs 3000 as a tax but under GST he will have to pay Rs 15,000 as tax. Again, traditional courses will remain out of the tax bracket. But the GST Council has increased tax on professional courses from 14% to 18%. This 4% increase in service tax on professional courses will have huge impact on the students pursuing such courses. For example, if the fee of a professional courses is Rs 5 lakh, one need to pay Rs 90,000 as GST in comparison to Rs 70,000 one paid earlier.

Though schools are considered and exempted from tax net, the government had to give the same consideration to Higher Education Institutions also. The higher educational institutions should not be treated similar to business institutions as it comes under social sector and policy makers are urged to re-think on this issue for the betterment of the student community.

Degree of Thought is a weekly community column initiated by Tetso College in partnership with The Morung Express. Degree of Thought will delve into the social, cultural, political and educational issues around us. The views expressed here do not reflect the opinion of the institution. Tetso College is a NAAC Accredited UGC recognised Commerce and Arts College. The editors are Dr Hewasa Lorin, Tatongkala Pongen, Aniruddha, Meren and Kvulo Lorin.
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