Bringing private schools within tax net

In line with Finance Minister Shaukat Tarin's stated resolve to increase the tax-to-GDP ratio, the Federal Board of Revenue (FBR) has moved to bring the private sector educational institutions within the tax net. Private educational institutions, from the pre-school level to higher education, are doing thriving business all over the country.
With the government having abdicated its responsibility to provide quality education to all, private sector educational institutions have stepped into the vacuum to mint money, charging arbitrary fees. Some also demand hefty amounts as donation, to be returned at the time of school leaving, using the money for earning bank interest or meeting day-to-day expenses. Many have acquired government land, on nominal charges, in the name of public service.
Yet a recent FBR report shows rampant non-compliance with tax rules. Using Pakistan Revenue Automation Limited (Pral) data for the years 2007-08 and 2008-09, the report examined the record of 1038 private school systems and some other educational institutions, and discovered that an overwhelming majority had not bothered even to obtain National Tax Numbers (NTN). Only 181 of them had acquired NTN, resorting, in most cases, to massive underreporting of their incomes in order to avoid paying tax.
Indeed, the private schools systems and higher education institutions are performing an important function because of the government's failure to fulfil its responsibility and the growing needs of an increasing population. However, as in the case of any other economic activity, their driving force is a desire to benefit from the opportunity, rather than an interest in rendering public service. There is no reason, therefore, why these schools should not be treated like any other business.
As the Finance Minister has been pointing out repeatedly, our tax-to-GDP ratio is painfully low as compared to other countries. He wants to expand the country's revenue base by increasing the ratio from the present 9.5 percent to 15 or 16 percent. The inclination, in the past, has been to enhance revenue by squeezing the existing taxpayers, especially the salaried class, or to increase indirect taxes, which equally affect the rich and the poor.
Successive governments have either preferred to neglect certain sectors or given up in the face of wilful resistance. It is hoped, this time, the FBR decision to act against the tax evading educational institutions will prove to be the beginning of a wider exercise to bring more sectors into the tax net.