The Financial Express (June 29, 2005) quotes the World Bank's recently released report titled India and the Knowledge Economy: Leveraging Strengths and Opportunities
the World Bank says by imposing an exit tax on IIT graduates and other professionals, who leave the country after receiving subsidised education, the government can collect over $1 billion (about Rs 4,400 crore) per annum. This figure is from students going to the US alone. Take into account professionals leaving for the Gulf and other countries, and the total could well exceed the collection from the education cess, which was around Rs 5,000 crore.
Around 100,000 Indians are expected to move to the US this year, seeking work. Assuming these professional earn an average salary of $60,000 per annum, the government could charge two months’ salary or $10,000 from the employee or the firm employing the professional at the time of granting the necessary clearance. The yield: a cool $1 billion.
Although the exit tax would almost certainly face political flak, the benefits would be huge. For instance, the funds would be enough to sustain the mid-day meal scheme, plus there would be cash to spare for building schools in villages and strengthening the elementary education structure.
According to UNDP estimates, India loses around $2 billion a year in resources due to the migration of professionals to the US. As the government spends around $15,000-$20,000 in educating a professionally qualified individual, the migration of such an individual virtually subsidises the economies of industrialised countries.
If this is declared as an exit tax, there will be a hue and cry about it (as is the case with any tax). If it is rather presented as a proposal to recover the full costs (for the subsidised higher education provided to them) from those students who want to go abroad, it may be more acceptable. It is a matter of marketing the proposal in the right manner. Banks can provide loans
to these students to pay the Government the full fees rightaway and recover
the loans from the students over a period of time - these students will surely have the capability to repay their loans. But the logistics will be complex. If students go abroad for further studies and not for work, are they to be taxed before the leave for further study? What if they come back and work in India after completing their studies? Will they be reimbursed? It is much easier said than done.
Indeed, the Government should look to recover full costs (for the subsidised higher education provided to students) from all students through long term (15 to 20 year) loans, not just from those going abroad for work. This could be implemented at the time of graduation. It can be made mandatory for every student to either pay the full costs at the time of graduating or take up a loan and pay it back over the next 20 years with repayment beginning from the time they land their first job. The Government will get its money back immediately for investing back in the higher education system, while the banks will get business from sound customers. This would fit in well with the Planning Commission's proposal for higher fees and educational loans to fund higher education.
Though the Financial Express has chosen to highlight only this proposal for an exit tax of all that is the World Bank's report covers, I could not find any mention of this exit tax proposal in the summary of the World Bank report available online (unfortunately the full report is not available for free- it costs US$ 25 per copy).
[Addendum (added on July 08): Reuben has also commented on this report in the Financial Express and has argued strongly against the exit tax idea. His post has generated a robust debate on the pros and cons of the exit tax on NRIs. Go check it out.]
In a section titled "Grooming World Class Knowledge Workers", the World Bank report recommends the following in the context of education in India:
• Expand access to primary and secondary education and improve quality and relevance
• Allow the private sector to fill the burgeoning demand for higher education by relaxing
bureaucratic hurdles and putting in place better accreditation systems for private providers of
education and training.
• Increase university-industry partnerships to translate research into applications that can yield
economic value.
• Develop lifelong learning programs to meet the learning needs of all, both within and outside
the school system, including using distance learning technologies to expand access to and the
quality of formal education and lifelong training programs.
