No VAT on school bus fees, operators confirm

School transport services will have to absorb VAT on fuel and spare parts, without passing on higher costs to parents

12:55 December 23, 2017

Dubai: Parents in the UAE will not have to pay value-added tax (VAT), which will be introduced on January 1, 2018 in the country, on school bus fees, VAT implementers and transport services have confirmed.

VAT, a form of indirect and general consumption tax, has been set at the rate of five per cent on a majority of goods and services in the UAE.

The tax-included price will be borne by the end user (“ultimate customer”), and collected by intermediaries (distributors and retailers), on behalf of the government, along the supply chain.

According to the Federal Tax Authority (FTA), there is a zero per cent VAT rate on “private and public school education (excluding higher education) and related goods and services provided by the education institution”.

The guidance is mentioned in the FTA’s ‘VAT Treatment on Selected Industries’. It shows that there is, however, a five per cent VAT rate on “school uniforms, stationery, electronic equipment (tablets, laptops etc.)”.

When it comes to “Transportation”, the FTA document notes that “domestic passenger transportation (including flights within UAE)” is “exempt”.

In an email to parents last week, School Transport Services (STS), which transports over 72,000 students everyday on some 1,800 buses for around 65 schools in the UAE, said: “Our understanding is that the provision of School Transport Services (School Transport Fees) shall be exempt from VAT.”

An immediate response for additional comments from STS was not available, despite repeated attempts by Gulf News.

Some schools, such as Indian High School (IHS) in Dubai, manage their own school bus transport service. IHS says on its website that “we have a fleet of 165 school buses that transport more than 10,000 students every day to and from school”.

Krishna Chaitanya, who is responsible for the implementation of VAT at IHS, told Gulf News that school bus transport comes under the “exempt” category of VAT in the UAE. As such, Chaitanya added, the school will not be collecting VAT on school bus transport fees.

Chaitanya explained that the exempted category means “we need not pay any VAT money to the government — on the income of transport fees — and we will not collect the VAT money from the parents”.

However, operational and running costs such as fuel and spare parts of the school bus transport service will rise by five per cent, he pointed out. The school will have to absorb the higher cost, Chaitanya said.

“Consider, for example, the expenses that we have incurred for the buses, such as petrol expenses: if you buy petrol, you have to pay five per cent VAT. That input — VAT — we cannot claim. We cannot pass it on, or we cannot get a refund from the government. Operational costs of school bus transport service will be increased by five per cent [next year onwards], but the income will be the same.”

Apart from schooling, health care is another sector that has been mostly spared from VAT.