VAT on Educational Service; Threats of Commercialization and School Dropouts

TEMPO.CO, Jakarta - The issues on the application of value-added tax (VAT) on the educational service sector have emerged since the leak of the revised draft of Law on General Taxation Procedures (RUU KUP) last week.

In the circulating draft, there are changes related to the types of services that are not subject to VAT. Of the 17 types of services that are not subject to VAT in the KUP Law, 11 types have been scrapped in the revised draft. They are medical health services, social services, mailing services with postage stamps, financial services, insurance services, educational services, non-advertisement broadcasting services.

The others include public transportation services on land and water as well as domestic air transportation services which are an integral part of air foreign transportation services, labor services, public telephone services using coins, and money transfer services using postal money orders.

The removal of educational services from the list of types of services that are not subject to VAT has met with criticism from a number of private education institutions. One of them is the Nahdlatul Ulama’s (NU) educational wing, LP Ma'arif or Ma’arif Institute.

The Ma’arif Institute chairman Arifin Junaidi opined that the planned tax imposition would threaten the sustainability of private schools and might increase the illiteracy rates and school dropouts. 

“If the private school tax is enforced, the dropout rate will surely be higher and the age [of students] who will likely dropout will be younger,” Arifin told Tempo on Monday, June 14, 2021.

According to him, most of the private schools are accessed by children from economically vulnerable families. This is attributable to the human development index (IPM). “If we rely on state schools, the enrollment rate will certainly be low because of limited public schools,” Arifin said.

The Muhammadiyah Teacher Forum (FGM) shared similar criticism. The forum’s chairman Pahri said if the revision of the law is passed, the world of education in Indonesia will face big impacts, such as the higher school operational burden.

Another impact is the declining welfare of teachers, lower procurement of educational facilities, heavier burden for parents, and higher number of students dropping out of schools.

Acting Head of the Cooperation and Public Relations Bureau at the Education, Culture, Research and Technology Ministry, Hendarman, suggested Tempo question the Finance Ministry regarding the tax issue.

Director of Counseling, Servies, and Public Relations of the Tax Directorate General at the Finance Ministry, Neilmaldrin Noor, ensured that the implementation of VAT will not increase the dropout rate.

“[The tax] will not be imposed on such educational institutions, but for educational services that are consumed or owned by people with far different purchasing power,” Neilmaldrin said in a media briefing on Monday, June 14.

Read: Jakarta Resumes Trial of Face-to-Face Learning at Schools

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