How good is GST for Education?

Dr. S.S. Mantha Jul 10, 2017

We often describe goods and services in the same breath almost loosely so to say. Different as they are, a business is successful if it can combine the two to provide a unique USP. However it is of some value to understand the finer nuances between the two for herein lies the key to understanding the tax structures.

Goods are the material items that the customers are ready to purchase for a price. Services are the amenities, benefits or facilities provided by other people. Whereas goods are tangible, services are intangible. When a buyer purchases goods by paying a consideration, the ownership of goods moves from the seller to the buyer whereas, ownership of services remains non-transferable. The evaluation of services is difficult because every service provider has a different approach of carrying out services, so it is hard to judge whose services are better. Whereas goods can be returned to or exchanged with the seller, it is just not possible to return or exchange services, once they are provided. Further, goods can be distinguished from the seller but services and service provider are inseparable. A particular product will remain same regarding physical characteristics and specifications, but services can never remain same. Goods can be stored for future use, but services are time bound. Finally, goods are produced, traded and consumed, whereas services are produced and consumed at the same time.

As of yesterday, there were a number of indirect taxes levied by the government on import, manufacture, sale and even purchases of goods and services. These laws were also not well-defined and grey areas remained, in terms of Acts enacted by the government, Orders, Circulars and Notifications given out by relevant government bodies from time to time. As such, it was incommodious trying to understand every feature of indirect taxes in the Country.

Indirect tax is collected by the government from an intermediary such as manufacturer or retailer. The eventual burden of the tax falls on consumers who buy goods and services from the intermediary, as the intermediary applies indirect taxes on the product in the form of Value Added Tax (VAT), service tax, sales tax etc. There are more than 15 such indirect taxes making it most unwieldy. Further VAT rates and regulations differ from state to state and it has been observed that states often resort to slashing these rates for attracting investors. This results in loss of revenue for both the Central as well as State governments.

The best panacea or so it seems, is to amalgamate all these into one single tax structure. So, Goods and Services Tax (GST), a comprehensive indirect tax has become a reality today. Levied on sales, manufacturing and consumption of services and goods across the nation, it is expected to improve overall economic growth of the nation. However, the devil is in the fine print. Both the Central as well as State governments are set to impose GST on all services and goods produced, manufactured and imported in the country, whereas exports are not subject to GST. GST rates on different commodities follows an understanding of the spending habits of individuals. Needless to say the money collected through indirect taxes can be used for social welfare and infrastructure both needed for Nation building.

Currently, under the Bill, GST rate has been capped at 40%. This means that the Centre and state cannot impose CGST and SGST at a rate higher than 20% each. Similarly, the IGST rate on inter-state sale has been capped at 40%. The central government has specified the tax slabs, and items to be taxed at each slab through a notification. Herein lies the heartburn for it is possible that the SGST and CGST together can make life difficult. The combination could even make commodities and services more expansive than they were before, even on those that have attracted a lesser tax in the form of CGST.

A country’s intrinsic value lies in its educated populace. Very often, it determines its future and hence access, equity with quality are some cardinals that a country cannot forget. With a GER of about 22, a lot needs to happen in the higher education sector. Even RTE would need massive funds to sustain. Is it fair to look at education as commodities to be traded? It is also enshrined in the constitution of the country that education is not for profit. One would have expected all forms of education and its services to be exempted from GST.

Be that as it may, in some ways the GST Council was benevolent to the needs of education sector while releasing the rates of GST applicable to services, and continued to exempt education albeit with some conditions. Let’s look at some of these, though it must be said that an attempt has been made to push for maximum literacy with maximum coverage.

As per a notification disseminated by the CBEC, exempted services include those provided by an educational institution to its students, faculty and staff; to an educational institution, by way of transportation of students, faculty and staff; catering, including any mid-day meals scheme sponsored by the government; security or cleaning or housekeeping services performed in such educational institution; services relating to admission to, or conduct of examination by, such institution; up to higher secondary.

Whereas the exemption only applies to education from the pre-school level, up to higher secondary, imparting a curriculum for obtaining a qualification recognised by any law for the time being in force it would have been wonderful to see the exemptions extended to higher education as well.

Vocational education, Skills training, NSQF based skill courses have all been exempted, rightly so, for the new paradigm of “Skill India” needs to be a successful. Seamlessly integrated into higher education, it will not only provide for skilled manpower but also promote an alternate education paradigm. However, when skills are a part of higher education will the exemption still hold will need some racking of the white matter.

Some services provided by the Indian Institutes of Management are also exempted, like the two-year full-time residential Post Graduate Programmes in Management, to which admissions are made on the basis of Common Admission Test (CAT), Fellow programme in Management; Five-year integrated programme in Management, services by way of training or coaching in recreational activities relating to Arts or culture, sports by charitable entities registered under Section 12AA of Income Tax Act, 1961 and, lastly, all services provided by NSDC. Services of assessing bodies empanelled centrally by Directorate General of Training, and the Ministry of Skill Development and Entrepreneurship, that fall under the Skill Development Initiative (SDI) Scheme have also been exempted.

These are all welcome though included as they are, there seems to be a less than arguable position for keeping services of higher education out of the exemption slab. One more non exemption that finds no justification are supplies provided by third parties like musical instruments, computers, sports equipment, after-school activities offered directly by third parties, food and accommodation supplied for excursion, uniform and stationery. Are not all auxiliaries that promote education as much a part of education as those that directly affect it?

Looking at education spend as a share of the GDP, which is what international trackers do, the trend is clear, having dipped from 0.63% of the GDP in 2013-14 to 0.47% projected by the government for 2017-18. Although budgeted expenditure for the ministry of human resource development (MHRD) has increased over the previous year by about 8%, this is illusory because inflation of about 5%-6% would neutralise most of it. GST implementation when in full flow, can hike these percentages for better delivery and reach of education. It would have been great to see seamless credit on input tax implemented across the supply chain, in order to bring down the total cost of education upon India’s journey into the GST era.