EXIT TAX ON GRADUATES IS NOT A GOOD IDEA
The idea of an exit tax on graduates from India's highly subsidised
institutes like the Indian Institutes of Technology and the Indian
Institutes of Management is back on the horizon, with the
parliamentary standing committee on human resource development
suggesting it. The logic is simple — the exchequer subsidises these
students who then go on to earn substantial sums by working for
multinationals abroad and the Indian exchequer gets very little for
its investment. The concept of taxing graduates is not new. The UR
Rao Committee, set up in 2003 by the NDA government to look into the
workings of the All India Council for Technical Education (AICTE),
had suggested that the industry which employees these students
should pay a cess. The cess would help the government recover the
cost of subsidising these students. The committee's report was
submitted to the then HRD minister Murli Manohar Joshi. Follow-up
action on the committee's recommendation could not be taken as the
NDA government was voted out. The notion of recovering costs of
higher education, especially technical education, seems to have
struck a chord with the present United Progressive Alliance
government, as well. The subsidy involved is fairly substantial. It
costs Rs 1 lakh per year to educate a student in an IIT, but only Rs
32,000 is charged by way of fee. Hence, nearly six months ago, the
HRD ministry asked the finance ministry to consider levying an "exit
tax" on graduates who leave the country from premier institutions
run on massive subsidies. The finance ministry promptly turned down
the proposal, saying it was illogical to have a plethora of taxes.
Instead, the subsidy burden could be pruned by raising the fees for
students enrolled in premier institutions such as IITs and IIMs. The
story did not end there. The HRD ministry pursued the proposal with
a parliamentary panel which, in turn, backed the suggestion to levy
an "exit tax". The group also recommended imposing a "graduate tax"
on employers recruiting skilled and trained manpower, saying that
these measures could address the funding requirements for higher
education. The proposal to have an exit tax is an old idea, mooted a
few years ago by a multilateral funding institution. According to
one report, the government could raise at least Rs 4,500-5,000 crore
from students going to the US — the amount is less than 1% of the
total taxes collected by the Centre. The differences between the HRD
and the finance ministries over the funding of higher education
reached a flashpoint during the 2007-08 budget formulation exercise.
The finance ministry opposed the 1% cess on all taxes to fund
secondary and higher education, saying that such a levy would
distort the taxation structure. Besides, a cess by nature was
temporary and would have to be withdrawn at some point of time, it
had said. But the finance ministry finally had to yield. After all,
the UPA government has made a commitment in its national common
minimum programme to raise public spending in education to at least
6% of the GDP in a phased manner. Higher education funding has been
a hotly debated issue not just in India but also in United Kingdom,
which looked at the introduction of a graduate tax some years back.
Those who favour such an impost argue that higher education is
nothing but an investment by students: they give up their current
earnings to earn more in the future. These earnings could,
therefore, be taxed as their normal income. A graduate tax could
specifically capture the extra returns from higher education –
CAclubindia
