Top court’s tax verdict throws private universities into crisis

Private universities in Bangladesh are at loggerheads with the country’s tax authorities over payment of 15% income tax, which was imposed following a verdict by the Appellate Division of the Supreme Court, pushing private higher education institutions into crisis.

Banks have frozen the accounts of at least 12 private universities following instructions from the National Board of Revenue (NBR), aimed at implementing the 15% tax. The NBR sent notices of taxes due to more than 30 private universities as of 1 April, including the 12 universities, said sources at the Association for Private Universities of Bangladesh (APUB).

The letters were sent following the Appellate Division of the Supreme Court’s verdict on 27 February scrapping a High Court ruling that declared illegal government orders imposing the 15% income tax on private universities and private medical, dental and engineering colleges.

Additional Attorney General Sheikh Mohammad Morshed told the media the same day that following the verdict, the institutions would have to pay the tax.

Tax + pandemic = financial crisis

The APUB, in a statement on 21 March, said imposing income taxes would result in the closure of some private universities already grappling with financial constraints caused by the COVID-19 pandemic, as well as facing decreased enrolment. Closures would severely limit access to higher education for students, it said.

The pandemic took a heavy toll on private universities. Sources at the universities regulatory body the University Grants Commission said 47% of 186,899 seats at undergraduate level in private universities remained vacant in 2020, and around 49% of seats at the same level were vacant in 2021. There are about 350,000 students at 104 private universities in Bangladesh.

“Freezing of bank accounts is an inhuman move,” APUB president Sheikh Kabir Hossain told University World News. “This could result in delays in salary and festival allowance payments for staff, and impact essential services for students ahead of Eid Ul Fitr,” said Kabir, referring to the Muslim festival around 9 April that marks the end of Ramadan. At least 90% of Bangladesh’s population is Muslim.

An APUB source told University World News on 1 April that North South University, American International University-Bangladesh, University of Asia Pacific, East West University, Southeast University, Daffodil International University, Independent University, University of Liberal Arts Bangladesh, Notre Dame University Bangladesh, Prime University, World University of Bangladesh and Shanto-Mariam University of Creative Technology, were the 12 institutions that received letters from their banks about freezing of bank accounts.

Account freeze

APUB said the full text of the Supreme Court’s verdict and its observations have yet to be made public. Kabir said APUB would respect the verdict, but the authorities should have made its decision after the full text was available: “So that we can call for review of the verdict”.

At least they could have held discussions with stakeholders of private universities before taking the step, he added.

The APUB in its statement sought immediate government action to alleviate the crisis, calling for the withdrawal of bank account suspensions and delaying tax collection until legal issues surrounding the tax are resolved.

It said private universities that rely solely on student tuition fees without government grants are already burdened with various taxes, including VAT on salaries, educational materials and campus construction.

Despite these challenges, universities allocate remaining funds from tuition fees towards activities benefiting students and faculty, such as improving education quality, supporting research and expanding campus facilities, it argued.

Students worry about tuition fee increases

The Bangladesh government has long been trying to impose a tax on the income of private universities but had to back down in the face of student protests.

Many students at private universities said that as the private universities have no income other than from tuition fees, the tax burden will eventually be passed on to students.

“I am worried that our tuition fees will rise. Universities will never pay the taxes from its funds. Doors to higher education for many students might be closed due to the tuition fees increases,” Hasan Wali, a student at Stamford University Bangladesh, told University World News.

He pointed out that thousands of private university students had in the past taken to the streets in protest at a government decision to impose Value Added Tax (VAT) on private university tuition fees, fearing at the time that the additional cost would be passed on to them.

The government backtracked from imposing 15% VAT on tuition fees in 2010 and 7.5% VAT in 2015, following massive protests by students in the capital Dhaka and elsewhere in the country.

In 2016 the state pleaded to be allowed to file an appeal with the apex court, which was granted in February 2021. In April last year the Appellate Division of the Supreme Court upheld a High Court order asking the NBR not to collect income tax from private universities in the country.

Need for mediated discussions

In its statement, APUB noted that according to the section 44 (7) of the Private University Act 2010 “the general fund of the university shall not be used for any purpose other than the necessary expenses of the university. These universities are ‘non-profit organisations’ under the law.

“So, the founders and directors of non-profit private universities cannot take any money from the general fund of the university. Similarly, paying it as income tax or spending it in any other way is a direct violation of the university act,” said the statement, which noted the need for consultations on amendments to relevant conflicting sections of the income tax law and private university law.

A top APUB official said the University Grants Commission (UGC) could play a mediating role in arranging discussions between NBR and private universities.

However, UGC Member Professor Biswajit Chanda told University World News that if the appellate division of the Supreme Court ordered the freezing of bank accounts, then there was no scope for UGC mediation. “But if the appellate division does not say anything about freezing of bank accounts, there is scope for us to mediate the discussion,” he said.

A top NBR official told University World News that they imposed income tax according to income tax law. Pointing to the argument put forward by private universities that income tax should not be imposed on their institutions which are non-profit and have no income, the NBR officials said “it is their opinion. The matters have already been settled in the court”.