By Peter Nyanzi
Why it is self-defeating for proprietors of private schools to shun taxes on their net annual profits
The evening TV news bulletin on April 14 showed two very happy men; the first was Prof. Lawrence Mukiibi, the proprietor of St Lawrence Schools and colleges, the other was Prof. Badru Kateregga, the vice chancellor of Kampala University. President Yoweri Museveni had just announced that he would look into their proposal for corporate tax on schools to be reviewed.
At the launch of the Lead Patriots Convention at the campus of his St Lawrence School, an elite school at Maya near Kampala, Prof. Mukiibi had passionately urged President Museveni to push the government to reconsider the idea of requiring private schools to pay corporation tax. Ten years ago the government gave private schools a tax holiday, but it was scrapped in the 2014/15 budget in a bid to boost government revenue collections.
Mukiibi and Kateregga reasoned that imposing the tax would “deter the development and the expansion of quality education offered by private institutions.” Surprisingly for some reason, the President appears to have swallowed that toxic bait. Having been made to believe – albeit subtly – that this was a tax on ‘consumption’ of education services, the President promised to do something about it, suggesting that it is alcohol, tobacco and luxuries that should be taxed not ‘development.’
That is what made the two otherwise respectable professors very excited. One could understand it as only natural because we all know that no one likes to pay taxes. The truth needs to be told, though. Corporation tax, which the private schools are being requested to pay, is not a tax on education as a service or excise duty as charged on alcohol or cigarettes. It is a progressive tax that is charged on the net profits that a business makes per year.
This means that if a business entity declares zero profits in a year, it will not be charged any corporation tax. Ordinarily, one would think it isn’t really asking too much to request the owners of private schools – which are now some of the most profitable business entities in the country – to contribute a small portion of the profits they make per year to the national coffers. Is it fair that less profitable business owners should pay corporation tax while other citizens are exempted from the same tax?
I invite these school proprietors to internalize Article 17 (1) (g) of the Constitution, which says, “It is the duty of every citizen to pay taxes.” Instead of appearing to be advertent to their obviously selfish interests, I think the President and the government need to hammer it in the heads of private school owners that tax revenue helps the government to extend social services to all Ugandans. These vital functions include security, the enforcement of law and order, education for the less privileged members of society, health care provision, infrastructure (roads and energy), all of which provide a conducive environment for businesses to grow and thrive. Do private school owners need these vital services for their families, students, teachers, pupils and parents? Of course they do. Now, if they resent the idea of contributing to the provision of those social services, where will the money come from?
It is grossly selfish on the part of private school owners and unfair on the part of the government to expect some citizens to shoulder the tax burden while others are left to enjoy their profits. Worldwide, countries – especially those that give us aid – tax the income of individuals and the net profits of all business entities. Uganda should not be an exception. It is the shunning of taxes that stymies development not the other way round. Now, let’s ask: What positive impact has the ten-year rebate made on the development of education in Uganda? Ideally, that tax rebate on the net profits made by private schools should have led to lower tuition for the parents and higher wages for the labouring teachers.
But it has not been the case, unfortunately. Parents are paying several times more in school fees than they did ten years ago. Even the average teacher in those schools is not any better-paid, never mind the cost of living has kept rising. Instead, parents are shouldering an ever-increasing burden, which includes being required to buy building materials and to make cash contributions to school buses and other capital projects. Now, where does the money they get from the tax exemptions go apart from the personal accounts of the directors? Additionally, the bulk of the donkey work at private schools is carried out by teachers. Most of these hardworking men and women are paid peanuts.
Then from the little they get, they must pay taxes on their employment income in the form of PAYE plus other deductions. Some are even denied employment benefits such as the 10% contribution to NSSF, medical allowances etc. The children of many of them go to congested UPE schools because they can’t afford the fees at the schools where they teach. Guess who gets the lion’s share of the huge profits the schools make per year. It is the directors/shareholders of the schools. And they can afford the effrontery to get the heebie-jeebies when asked to pay some tax on those profits! Someone please convince me that this is fair. Everyone else, of course apart from the owners of schools, would have the feeling that it is morally wrong that the profitable businesses of private schools – many of them attracting hundreds of students from across the region – should be exempted from corporation tax. Let’s do the math.
Estimates show that there are about 20,000 private schools across the country currently. Now, let’s suppose that each school makes a very conservative average of Shs 3m in net profits per year. A corporation tax charge of 30% would yield only Shs 900,000 per school per year but a massive Shs 18 billion for the national coffers from all the schools. This is good money that could go a long way in providing the vital services and sustaining the conducive environment that the proprietors of those schools desperately need to continue in business.
Unfortunately for Uganda, some of the policy/decision makers and implementers also own schools. Will they ignore their vested interests and make a rational decision? I think they should. Currently, Uganda has the lowest tax revenue to GDP ratio in the region. As donors continue to tighten their aid taps, everyone must play his/her part to boost domestic revenues. That means we shouldn’t be selfish but willing to give away a small portion of the profits we make from our businesses to the national coffers. We are not talking about VAT on education services. We are talking about corporate tax on the annual net profits made from the business. Every citizen, including private schools owners, has a constitutional duty and a responsibility to develop Uganda by paying taxes.
The writer is a journalist