Graduate Tax

A panel in the Indian government has recommended that the Government of India tax graduates of India's institutions that enjoy any education subsidy from the government. It's called the 'graduate tax' or 'exit tax'.

from the Times of India

Parliament's standing committee on HRD ministry has recommended taxing students who take up overseas jobs after graduating from premier higher education institutions and their employers as well.

Called 'graduate tax' and 'exit tax', the standing committee has argued that such a system is in vogue in many countries.

However, it did not mention the name of these countries. In its report, the committee said graduate tax was levied on those who used the services of trained manpower.

"An employer is required to pay an annual tax to the government for each graduate recruited by it," the committee said, while admitting that the scheme had a major drawback as it might lead to substitution of university graduates with less educated manpower.

"Nevertheless, the committee feels that taxing employers based on the type and number of manpower they use has a good rationale and should be considered seriously for implementation," the report said.

In its reply, HRD ministry said the committee's suggestions would be conveyed to the finance ministry and the University Grants Commission.

The parliamentary panel said the imposition of exit tax on students taking up foreign jobs after obtaining their degrees, particularly from premier institutions which are run with massive state subsidies, was suggested by some experts.

They argued that the expenditure on such students did not provide any returns to the country.

On the face of it, it is very logical. The Goverment funds these students to study, so when the time comes, it wants the economic value of the generated brain power back.

Let's see what the implications of such an enforcement would be.

1. First and the most basic, is the reduction in freedom for the students. This would cause the percieved value of such education to drop.
2. Second is that it is usually the best ranked institutions and universities of India that recieve the most subsidy. It is a fact that most of the affiliated graduates of these places look for overseas opportunities as soon as possible, though it is said that the trend is declining. The enforcement would precipitate a crucial choice in what is more important for bright students - getting overseas experience or getting into the highest ranked universities (and facing unemployability). My own experience is that after you have graduated and are in the working world, it doesn't really matter as much where you graduated from, as what your abilities are. So, my bets are - the highly ranked, but subsidised institutions, will have more trouble attracting the best candidates and their rankings may suffer.
3. The "graduate tax" specifies the employer as the one who pays the taxes. I don't see this happening except in some exceptional case, where the prospective employee is a genius of some kind. This renders the graduates unemployable abroad. This will add to the 'coolie' economy, where instead of inviting graduates to work abroad in an equivalent environment and gain international experience, multinational companies will open local offices in India and keep the graduates there on lower salaries, yet still extract their pound of Indian brain power.
4. As the Indian diaspora worldwide will attest - the latest typical Indian emigrant to other countries is very competent and professional. This has helped change the perception of India. The first generation immigrants are also very closely tied to families back home and many send back financial assistance. The more prosperous are also donating to charities, scholarships and frameworks to enhance the capabilities of the people back home. The Indian businessmen abroad are investing back in India as they see it as a great growth opportunity. All this will suffer. The second generaton of immigrants tend to be more distant and don't have that much of a connection to India.

In the end, the loss may be far greater than the gain.

A better option for the Government, to keep it's investment in the institutions, is to take off the subsidies altogether. I can see the traditionalists screaming at me now, asking how is the poor guy to be educated then? How will they pay the resulting enormous education fees? The answer lies in the Government giving out individual loans to economically challenged students. A condition can be set that if the graduate accepts to take this loan and then proceeds to go abroad, then they have to pay 'graduate tax'. As long as they remain in the country they don't need to repay the loan and won't be taxed. This would continue to help the poor students and the well-off won't use up the Government's resources.

Yes, this means rich students will leave India and the poor will stay. This is already true - the airline ticket and foreign visa applications are not cheap. But no matter how you slice it, this 'graduate tax' measure is discriminative.