Education services offered by private educational institutions in Indonesia will soon become subject to value-added tax (VAT) in the latest government tax plan, fuelling concerns that it will increase the cost of education for those without access to state schools while putting the burden on private providers.

A draft revision to the 1983 law on general tax provisions and procedures removes educational services from the list of those exempt from VAT, as part of this year’s National Legislation Programme (Prolegnas).

Tri Wahyuningsih, a 51-year-old owner of a private vocational school in Surakarta, Central Java is one of many who disagree with the government’s tax proposal. Her school is facing the possibility of being taxed.

“All the funding we have received, be it from donors [or] the public, we put it back in for the good of the public, to manage the school, to build the school and for the needs of the students. Nothing is taken for profit,” Tri told The Jakarta Post on June 25.

Tri said that, in fact, “the government should be thankful for what has been done by the private [institutions] in building the country [through education] together”.

Now with the threat of VAT looming, Tri warned that the tax policy would only become an additional burden for parents who were not able to send their children to a state school. She feared that school dropouts might increase.

The government previously defended the VAT proposal, saying that making school tuition subject to VAT would not be applicable to state schools, and thus, would not affect lower-income families, who could choose cheaper or free state schooling.

Directorate General of Taxes spokesman Neilmadrin Noor told reporters in a media briefing in mid-June: “Commercial educational institutions will be the ones levied with VAT. State schools and educational institutions with a social and humanity mission will not be subject to VAT.”

Ministry of Finance special staff member Yustinus Prastowo said expensive private schools did not charge VAT in their tuition despite their students being generally better off than students at free or subsidised state schools.

“We think this is not fair because we did not tax the rich [that enrolled their children in private schools] and distribute it to the poor,” Yustinus said earlier this month.

The tax office also introduced a multi-tariff system in the proposed tax amendment, in which VAT rates could vary between five and 25 per cent depending on the kind of goods and services being traded.

It remains unclear how much educational services will be taxed according to the multi-tariff system.

When pressed for details, Neilmadrin only said the tax office was still reviewing the details of the VAT plan for educational services.

“For technical matters [on the proposed VAT] we are still conducting further discussions,” Noor told The Jakarta Post on June 26.

Ministry of Education, Culture, Research and Technology spokesperson Seno Hartono also said the ministry was still waiting for the details of the proposed VAT plan on educational services from the finance ministry.

Despite assurance from the finance ministry that only expensive private schools will be taxed, Education and Teachers Association (P2G) national coordinator Satriwan Salim criticised the decision for being counterproductive and lacking in clarity.

“It would be impossible for the criminal code draft to also regulate ‘expensive’ schools. What even are the criteria for a school to be categorised as expensive? … Not all good private schools are expensive, and not all expensive schools are good,” Satriwan said.

He suspected the VAT plans were a “form of [government] desperation in seeking income” despite the Constitution already mandating the government to spend a fifth of the national budget on education.

“If private schools are also taxed, they would have to increase tuition fees,” Satriwan said, as he warned of the threat of the “privatisation and commercialisation” of education.

Education expert Indra Charismiadji said VAT and the commercialisation of education would be a step away from the mandate of the Constitution, which says that the education of its citizens is the responsibility of the government.

He estimated that three per cent of Indonesian children did not attend elementary school, while a further 20 per cent did not attend middle school due to the pandemic.

With the pandemic only serving to exacerbate these numbers, Indra feared that the VAT plan would spell the end of education for a great number of less fortunate children.

“The government should instead be thankful for being aided by the public’s funds, because of that [students in private schools] are still able to get an education. In fact, it should be the government’s responsibility according to the Constitution,” he said.

He said many students across the country would ultimately end up in private schools, not of their own volition, but because access to free education was still limited due to state schools failing to provide enough seats.

He urged the government to either drop the proposal, or forcibly change the Indonesian Constitution for it.

THE JAKARTA POST/ASIA NEWS NETWORK