Impact of Vat


Aastha Rangan
Impact of Vat
Director - VAT Advisory

GCC VAT framework agreement has given GCC states the option to subject education sector to rate VAT at the zero rate or treat it as exempt. UAE opted to zero rate whereas Oman has exempted the provision of education, and associated goods and services.

If an organisation is supplying exempted goods or services it need not register for VAT. Aastha Rangan, Director VAT advisory, Crowe Oman, says if the educational institutions are relaxed and not bothered as they are granted exemption, then they need to wake-up and realise that VAT may apply, if the education service providers is supplying taxable services along-with exempt services.

In addition to education services, for which the education provider usually charges a school or tuition fee, the education provider may also provide other ancillary services like catering, sale of goods such as uniform, stationary, merchandising, books, computers, musical equipment and bags; transportation of students; provision of vocational courses, sports classes during the summer break or evening; and organising events, excursions and field trips, conferences, musicals, plays, shows. It is important to determine whether and to what extent such activities will fall to be treated as related and incidental to "education" services and subject to exemption, or whether they will be considered as supplies of a different service and attract VAT.

As per Davis Kallukaran, Managing Partner, Crowe Oman, education provider should realise the need to study there business transactions and identify if supplies fall under exempt category or not. The institutions need to assess the implication on case to case basis. Let us try to understand the same under various scenarios; for example (1) An Institution sells curriculum books to enrolled student for the course. This will be exempt as it directly related to providing education. (2) Now, if the institution sells the curriculum books to an outsider, then this may attract VAT at standard rate. (3) Let’s say if the institution sells story books which are not related to curriculum then this also will attract VAT at standard rate.

Another situation where determining VAT treatment will be challenging is when educational institutions receive grants or sponsorship. The tricky point here will be the benefit or service which the education institution provides to the donor or the sponsor. Where a benefit is provided, the supply might be taxable. Benefit can be naming an event after a sponsor, giving free of charge tickets in return for the sponsorship, displaying the sponsors logo, etc. However, where there is no significant benefit received, the income will be treated as outside the scope of VAT. The Executive Regulation is likely to give more clarification on VAT treatment for the education sector.

Another key issue which should worry the education sector is the ‘input VAT credit’. Falling under exempt category put the education sector under a disadvantage as they will not be able to recover any VAT incurred on their purchases and expenses directly attributable to that exempt supply. There is another challenge for education sector, when they make mix of taxable and exempt supplies. They will need to apportion the VAT in relation to certain shared overheads like marketing, utilities and rent, because the VAT attributable to exempt supplies will not be recoverable. These factors will increase the cost for education providers who may, in turn, wish to raise the school fees to compensate for the higher cost and maintain profit levels.  

Crowe advises the educational institution in Oman to start evaluating the VAT implication on their organisational set-up as nuances in the VAT law and the upcoming Executive Regulation can lead to varying VAT outcomes, as described above.