Key highlights:
- The Appellate Division of Supreme Court determined on 27 February 2024 that all private institutions in Bangladesh are now required to pay income tax.
- A 4-member bench, headed by Justice Borhanuddin, dismissed 44 appeals filed by the government challenging the High court’s ruling.
- The HC’s September 5, 2016 verdict, responding to 46 petitions, including 12 private universities and a student, deemed the 15% income tax on private universities and medical, dental, and engineering colleges illegal.
- Tax compliance generates revenue streams that contribute to the government’s budgetary allocations for education and other public services.
Tax compliance is a critical aspect of any nation’s economic stability and growth. In Bangladesh, private educational institutions play a pivotal role in shaping the country’s future by providing quality education. However, their tax compliance practices have been a subject of debate and scrutiny.
In a recent development, the Appellate Division of the Supreme Court determined on 27 February 2024 that private universities, medical colleges, dental colleges, engineering colleges, and other private institutions in Bangladesh are now required to pay 15% income tax. This decision, following an extended legal dispute, carries significant implications for the financial operations of these institutions.
To understand the overall tax picture, let’s put only the private university scenario here, according to the UGC published report in 2018, all private universities generated Tk. 3,504 crore in revenue and incurred Tk. 3,359 crore in expenses. Consequently, private universities managed to save approximately Tk. 525 crore and a heavy tax is sleeping within that profit amount.
The ruling by the Appellate Division reverses the High Court (HC)’s decision made in 2016. A 4-member bench, headed by Justice Borhanuddin, dismissed 44 appeals filed by the government challenging the HC’s ruling. The other 3 judges on the bench—Justice M Enayetur Rahim, Justice Md Ashfaqul Islam, and Justice Md Abu Zafor Siddique—unanimously affirmed the requirement for private institutions to contribute to the state’s revenue.
While the ruling is definitive, its practical implementation remains uncertain. The full text of the Appellate Division’s judgment has yet to be disclosed, leaving room for interpretation. Additional Attorney General Sk. Md Morshed acknowledges the necessity for clarity regarding the procedures for tax payment. Private institutions are awaiting detailed guidelines on the modalities and timelines for fulfilling this obligation.
Why Were Private Institutions Exempt from Tax Payment?
The HC’s verdict, delivered on September 5, 2016, in response to 46 separate petitions, including those from 12 private universities and a student, declared the 15% income tax on private universities and private medical, dental, and engineering colleges as illegal. Additionally, the HC revoked the 3 government orders issued in 2007 and 2010 regarding the taxation of these private institutions.
Again, the Appellate Division, on February 9, 2021, annulled the directives issued by its chamber judge and instructed the National Board of Revenue not to enforce any income tax collection from private universities nationwide until further notice.
Subsequently, on June 30, 2021, the government reintroduced a 15% income tax on private universities, prompting 13 writ petitions from the affected institutions. Responding to these petitions, the High Court issued a ruling on September 27, 2021.
In its ruling, the High Court sought justification for the legality of the gazette imposing a 15% income tax on private universities and temporarily halted its enforcement, deeming it a violation of a prior Supreme Court order from February 9, 2021.
On November 21, 2021, the Supreme Court clarified that the 13 writ petitions were unrelated to the February 9 order. Consequently, the High Court Division was instructed to adjudicate these writ petitions without referencing the precedent set by the earlier Supreme Court order dated February 9, 2021.
The fiscal year 2021-22 budget proposal included a provision to impose a 15% income tax on the earnings of private universities. However, the university owners lodged a petition in the High Court, which granted a temporary suspension of this directive. Following this, the government challenged the ruling, but the highest court of the nation upheld the High Court’s injunction against the collection of income tax from private universities.
In 2023, the Appellate Division, led by the Chief Justice and comprising eight judges, affirmed the prior decision made by the High Court. The decision mandated the National Board of Revenue to cease collecting income tax from private universities at a rate of 15%. The state’s plea for a review was dismissed by the court.
Why Tax Compliance Matters?
First and foremost, tax compliance raises transparency and accountability within the education sector.
By adhering to tax regulations, private universities demonstrate their commitment to operating within the bounds of the law and fulfilling their civic duties. This transparency not only enhances public trust but also promotes a culture of integrity and ethical conduct, which are essential for the credibility and reputation of educational institutions.
Moreover, tax compliance generates revenue streams that contribute to the government’s budgetary allocations for education and other public services. In Bangladesh, where public funding for education may be limited, the taxation of private universities becomes even more critical. The revenue collected from taxes can be channeled towards improving infrastructure, enhancing educational quality, and expanding access to education for underserved communities.
Furthermore, tax compliance ensures a level playing field among educational institutions. When private universities fulfill their tax obligations, they prevent unfair competition and create an environment where all players operate under similar financial constraints and regulatory frameworks.
Additionally, tax compliance enables private universities to access various government incentives, grants, and support programs aimed at fostering educational development. By maintaining a clean tax record, these institutions enhance their eligibility for financial assistance and collaborations with governmental and non-governmental organizations, which can further enrich their academic offerings and research initiatives.
However, despite its importance, achieving tax compliance can pose challenges for private universities, especially in a complex regulatory environment. Issues such as ambiguous tax laws, bureaucratic red tape, and limited financial resources may hinder institutions’ efforts to fulfill their tax obligations effectively. Therefore, there is a need for collaboration between universities, government agencies, and tax authorities to streamline tax processes, provide guidance, and address compliance issues proactively.
In summary, the recent ruling by the Appellate Division of the Supreme Court mandating income tax payments from private educational institutions in Bangladesh signifies a pivotal moment in the nation’s fiscal dynamics. This decision, which reverses past exemptions and resolves legal conflicts, emphasizes the critical role of tax compliance in fostering transparency, accountability, and fair competition within the education domain.
