pwc report o educsaiot

7/29/2019 PWc report o Educsaiot

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India: Higher

Education sectorOpportunities forForeign Universities


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4 PwC

Overview of the Educationsector in India

Over the last decade, the Educationsector in India has grown leaps andbounds. The Indian Education spaceis by far the largest capitalized spacein India with Government spend ofUSD 30 bn and private spend of USD50 bn1.

In terms of number of collaborationsforged by Foreign Universities withIndian Educational Institutions,

in 2011 alone, a total of 161collaborations were reported2.

Source: *UGC report on HE in India Strategies during 11th plan (2007-2012) for Universities and Colleges, **

UGC Report on Higher Education at a Glance - February 2012.

Growth in number of universities and university level institutions

Growth in number of colleges

1 IDFC SSKI India Report January 20092 UK India Education and Research Initiative

Indian education space is thelargest capitalised space in India


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India: Higher Education sector 5

The Higher Education sector couldbroadly, be divided into 2 segments:Regulated and Un-Regulated.

While Foreign Direct Investment(FDI) in the Regulated segment is notfeasible as of now due to restrictionsimposed on the form of legal entity tobe set up (viz. trust/ society/ section25 company), FDI in the Un-Regulatedsegment is seeing a considerableinow:itwasUSD492mnduringtheperiod April 2000 to January 20123.

If Indian statistics are to be compared

with other countries, Indias HigherEducation system is the worldsthird largest with respect to studentenrollment, next only to China and theUSA (2008; *2010 - 11).

There are several factors which havecontributed to the exponential growththe sector has experienced in India:

- Huge demand/ supply gap in thesector;

- Greater number of private playersventuring into the Education sector;

- Growth of services sector,particularly the Information

Technology sector, leading todemand for skilled workers;

- Increasing FDI into the sector;

- Increase in Internet based educationmethods;

- Increased ability to capitalise onbrand and reputation;

- Opportunity to enhance scale anddiversify risk by tapping new marketsfor entrepreneurs.

Apart from the above, enhancedinterest has been shown by ForeignUniversities in the Indian Higher

Education sector on account offollowing:

- Increased focus of the Governmentof India on liberalising the Educationsector in recent times, manifested bythe proposed introduction of trend-setting Bills like Foreign EducationalInstitutions (Regulation of Entry andOperations) Bill, 2010, EducationalTribunals Bill, 2010 etc;

- Increased interest shown by ForeignUniversities in India

Developed countries,particularly USA, UK and otherparts of Europe are goingthrough a recessionary phaseon education, though in adifferent sense.

The share of their localstudents is consistentlydeclining and many of themhave realized that going globalis critical for survival. Therecent economic recession

has adversely impacted themin terms of the grants andendowments that they usuallyreceive. This is encouragingseveral universities to lookat emerging economies likeIndia for a more stable andself sustaining source ofincome taking campus to thestudents seems to be the newmantra.

Students enrolled in Higher Education Institutes (millions)

* 2010 11 UGC Report on Higher Education at a glance February 2012

Sources: UGC; UNESCO Global Education Digest 2010, MHRD Annual Report 2009-10; US Department ofEducation: National Centre of Education Statistics; Ministry of Education of the Peoples Republic of China

3 Fact Sheet on Foreign Direct Investment Department of Industrial Policy and Promotion

Central & State UniversitiesPrivate UniversitiesTechnical InstitutionsPrivate/Professional collegesResearch Institutions

Regulated(Formal Education)

Vocational trainingFinishing schoolsProfessional developmentTraining & coaching classes

Un-Regulated(Non-Formal or Semi-Formal Education)

*


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6 PwC

Regulatory Framework

Education is governed by theConstitution of India. Maintenance ofStandards of Higher Education comesin the Union List and Setting up ofUniversities falls in the Union andStates list.

Investment by Foreign Universities:

- While 100% FDI in companiesengaged in Higher Education isallowed under the automatic route,regulatory issues have constrained

theactualowofFDI.Themajorbottle-necks have been the notforprotprincipleandlackofclarity on existing regulations.The All India Council for TechnicalEducation (AICTE)4, in December2010, permitted section 25companies to act as sponsoringbodies of a technical institute withthe rider that no foreign investment(directly or indirectly) will bepermitted in such a company.While 100% FDI is permitted intheEducationsector,thisconicthas resulted in baring foreigninvestment in AICTE regulatedtechnical institutes in the country.

- The aforesaid challenge hasencouraged Foreign Universities tolook for alternative ways to enterIndias Education market, example,twinning arrangements with IndianEducational Institutions. This maybe the reason for the exponentialgrowth in the number of twiningarrangements forged betweenIndian Institutions and ForeignUniversities in recent times in India,as also the huge interest beingshown in this area.

Accreditation

National Board of Accreditation

National Assessment and

Accreditation Council

Regulation

University Grants Commission

AICTE, MCI, PCI, DEC, BCI, NCTE

ICAR, ICMR, ICSSR, CSIR

State Regulators

Policy Making

Association of Indian Universities

Central Advisory Board of Education

State Councils for Higher Education

Ministry of Human Resource Development

Higher Education Department

Note: Please refer Glossary section at end

4 All India Council for Technical Education was set-up in November 1945 as a national level Apex Advisory Body to conduct survey on the facilities on technicaleducation and to promote development in the country in a coordinated and integrated manner. AICTE is vested with statutory authority for planning, formulation andmaintenance of norms and standards, quality assurance through accreditation, maintaining parity of certication and awards and ensuring coordinated and integrated

development and management of technical education in the country.

Regulatory challengeshave encouragedtwinning arrangements


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Present opportunities forForeign Universities inIndia

Within the parameters of the extantregulatory regime, there are a variety ofopportunities for Foreign Universities inIndia, inter-alia, the following (this is notan exhaustive list and only illustrative sam-ples based on general observation of thesector/media reports):

Tie-ups with Indian EducationalInstitutions for Twinning programs

- There could be several variationsof twinning programs. Generally,a twinning arrangement operates

via a student undertaking a studycourse at its own institute in Indiafor a prescribed period and thensubsequently spending equivalenttime in the overseas institute.

Tie-ups with Indian EducationalInstitutions for providing services

- Foreign Universities can enter intotie-ups with Indian EducationalInstitutions for providing expertiseand services like faculty for

teaching,curriculum,afliationsetc.

Tie-ups with Indian EducationalInstitutions for Distance Educationprograms

- Another mode of operation whichis rampant is the e-learning orthe distant education course/program offered by many ForeignUniversities to Indian students.Here, Foreign Universities delivertheir teaching, often on anindividual basis, to students whoare not physically present in atraditional educational setting suchas a classroom, using technologies/medium like the Internet. Distanceeducation in India is regulated bythe Distance Education Council

which is established under theIndira Gandhi National OpenUniversityAct,1985.

Setting up entity in India/enteringinto arrangements with Indianparties for assistance with studentrecruitment activities where theobjectiveistoattractstudentsfromIndia and encourage them to enroll

with the University overseas.

Tie-ups with Indian EducationalInstitutions for Student exchangeprograms

- With an intention to enhancecross cultural exposure and so asto provide a global perspective

to students, these programsencourage Indian students tospend short time periods generallyranging from 2 weeks to a term/semester at the campus of ForeignUniversity overseas.

Tie-ups with Indian EducationalInstitutions for Faculty exchangeprograms

- These programs are devised withan intent to enable the teachingstaff to teach or conduct researchfor short periods at the campus ofthe counterpart university/college.This is often a win-win situation for

both the institutions as the teachingstaffcanbenettremendouslyfromexposure to a culturally varied anddiverse faculty make-up, with anopportunity to exchange ideas andobserve a variety of styles.

Tie-ups with Indian EducationalInstitutions for Joint researchprograms

- The purpose of these programs isto advance collaborative researchbetween excellent researchersin Foreign Universities andIndian Institutes while providing

opportunities for young researchersto hone their skills. These programsare typically carried out incooperation with overseas science-promotion organizations so as torespond to the global developmentofscienticresearchactivities.

India has a fairly liberated economywith no regulatory restrictions onpayments made outside India forservices amongst others. Thus, thereis a vast opportunity for provision ofinnovative services. Given the lack ofinfrastructure and severe competitionfor quality education, amongst others,there is a large and rapidly growingmarket for coaching and tutoringservices imparted through new andinnovative means, particularly theinternet. Another recent trend that iscatching up is that Indian corporates

are increasingly looking to outsourceskill training activities to specialisedinstitutions abroad.


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8 PwC

Sample operating modelobserved

Each arrangement between a ForeignUniversity and an Indian EducationalInstitution is unique and involves acomplex set of tax issues. Dependingupon the structure and substance ofthe arrangement and the manner in

which the same is documented, theIndian tax and regulatory implicationsmay need to be analyzed.

The Indian tax authorities are

perceived to be very aggressive asfar as examination and taxation ofnew unprecedented transactions orstructures are concerned. Consideringthat Indian tax department sometimesaggressively scrutinizes cross-border transactions and also mostimportantly, the fact that litigationin India is a time-consuming andexpensive process, it may be advisableto take the plunge only after careful,advance planning, so that Indiantax and regulatory exposures aremitigated.

An illustrative operating model

used by some Foreign Universities inrelation to courses offered in India (asobserved):

Foreign Educational Institution

Indian Educational

Institution

Contract

Payment

StudentsPayment o ees

Overseas

India

Payment o Foreign

Institutions share

Tie-up or twining

program

Mechanics Roles of the two parties

Twining program of 2 years: 1st year in India and 2ndyear overseas

Degree to be awarded by Foreign Educational Institutionat end of program, overseas

Faculty for teaching: of both Foreign EducationalInstitution and Indian Educational Institution

Services of Indian Educational Institution availed for

collection of fees from students and remittance overseas

Each arrangement mayinvolve a complex set oftax issues


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Regulatory Issues

The AICTE has prescribed regulationsfor Foreign Universities undertakingtwinning programs (i.e. collaborativeandjointcourses)withIndianEducational Institutions in TechnicalEducation. Some key features of thesame are:

- Fee/seats prescribed by AICTE;

- Degree/institution to be recognizedin the home country;

- Compliancewithafrmativeaction

mandatory;

- For degree granting institutions,afliation/tie-upwithIndianUniversity mandatory.

The University Grants Commission(UGC) recently gave in principleapproval to regulations on twinningarrangements under Promotionand Maintenance of Standards of

Academic Collaboration betweenIndian and Foreign EducationalInstitutions Regulations 2012. Theofcialcopyoftheregulationisnotavailable in the public domain and

information available through variousmedia sources indicates that the newregulation stipulates as under:

- Only top 500 Foreign Institutionsin Times Higher Education WorldUniversity Ranking or ShanghaiJiaotong ranking lists will beallowed to collaborate with IndianEducational Institutions;

- Only those Indian institutions thathave got highest accreditationgrade from NAAC or NBA areeligible for a tie-up with a ForeignInstitution;

- The Indian and the ForeignInstitution will have to enter intoan agreement that will have to beapproved by the UGC before it isimplemented;

- Existing collaborations will haveto get UGC approval in 6 monthstime;

- No franchise agreement will bepermitted.

The Foreign Educational Institutions(Regulation of Entry and Operations)Bill, 2010 which was introduced with a

view to regulate the entry and operationof Foreign Educational Institutionsseeking to impart Higher Education,is still pending before the IndianParliament for the past two years.

Tax Issues

Some illustrative key tax issues in sucharrangements are:

Usually the Foreign Universities are

tax exempt entities and hence all taxoutowstantamounttocashoutows.It is important to determine the taxstatus of the university in India,eligibilityofclaimoftaxtreatybenets,taxability of incomes earned from Indiaetc amongst others, while planning anyarrangements with Indian parties.

Unincorporated Joint Venture exposureincaseofprogramtie-ups/jointprograms

- Unincorporated Joint Venture is aunique concept under the Indian taxlaw. Unincorporated Joint Ventureis typically characterized by two ormore persons coming together withthe intention of producing income bya common action (amongst others).

An Unincorporated Joint Venture istreated as a separate taxable entity forIndian tax purposes.

- Depending upon the substanceand framework of the arrangementbetween Indian EducationalInstitutions and Foreign Universities,there may be exposures of creatingan Unincorporated Joint Venture inIndia.

- Amongst others, formation of an

Unincorporated Joint Venturein India may have adverse taximplications, illustratively thefollowing:

Uncertainty on availability of TaxTreatybenets/statusofventureunder Tax Treaty;


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10 PwC

Withholding Tax Obligations

- Withholding tax obligation is avicarious obligation in India, requiredto be complied with by both residentsas well as non-residents in respectof income taxable in India. Non-compliance with withholding taxobligations may lead to tax, multipleinterest and penalty exposures.

- Indian Educational Institutions mayneed to comply with withholdingobligations in India while makingpayments to Foreign Educational

Institutions. There may also be anobligation on Foreign EducationalInstitutions as well to withhold thetaxes and comply with the relevantprovisions at the time of payment ofcommission/fees to agents/ salaryto its faculty/ making payments topersonnel or other payments in India.

Taxability of faculty/personnel in India

- Taxability of individuals in India(including non-residents) dependson residential status which in turn isdetermined by the number of days ofstayinIndia.TaxTreatybenetsmaybe available-to be examined on case

to-case basis. Some Tax Treaties alsocontainbenecialtaxationprovisionsfor professors, teachers etc.

Need of the Hour

Although an increasing number ofstakeholders are looking seriouslyat investing into India, the technicalexpertise of how to bring internationalalliances into fruition is not alwayseasy to acquire. Adequate due diligence

will include appropriate attention toopportunity and potential in a newmarket but no form of analysis would be

complete without an understanding ofthe tax and regulatory environment.

India has a relatively transparenttax and regulatory environment.Foreign countries generally have a

well established tax code and taxationprinciples in India may seem similar tothose existing in their home countries:however, there are subtle differences

which can create traps for ForeignUniversities in India. The best advice aforeign entity can take in this respectis to seek out advice before taking theplunge into this emerging market.

The need of the hour is to plan anoperatingmodelwhichistaxefcient

and regulatory compliant from an Indiaperspective so that any potential adverseexposures in India are mitigated.

Higher tax rate on entire income ofthejointventureashighas40%(on net basis);

Restrictions on availability of carryforward and set off of losses in thehands of the individual parties.

Taxability for Foreign EducationalInstitutions in respect of incomesreceived from India (in India)

- Taxability in relation to incomereceived by the Foreign Universityin India is determined by whetherthe Foreign University has a taxable

presence in India or not (amongstothers). If a taxable presence iscreated in India, then tax rate inIndiacouldbeashighas40%(onnet basis). Presence of faculty/staffin India for prolonged duration,access to premises/space at disposal,amongst several other factors needsto be examined to analyse whether ataxable presence is created for theForeign University in India.

- Depending upon the structure/nature/substance of the arrangement,the income of the Foreign Universitycould be characterized as Royalty/

Fees for Technical services and maybe taxable as such in India at tax ratesrangingfrom10%to40%(baseratesexclusive of surcharge and educationcess) on gross basis.

Indirect Tax / Service Tax Implications:

- Service Tax is an indirect tax leviedon the services provided by a serviceprovider in India: in some caseslevied on service receiver underreverse charge mechanism. ServiceTax currently is 12.36%. Servicesrendered by Foreign EducationalInstitutions may be liable to Service

Tax in India in certain instances.


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- Conceptualize relationships/transactions/agreements fromtaxefciencyandregulatorycompliance standpoint;

- Tax compliance and litigationassistance;

- Analysis of Double TaxationAvoidance Agreements betweenIndia and other countries andadvise on optimizing tax liability inIndia for foreign personnel of theUniversity.

In addition, following are the other

services which we could offer ForeignUniversities:

Information Technology Enablement--Integrated Campus Solutions, ERPImplementation like PeopleSoft,Microsoft and SAP Training to ensureIndustry readiness of students,Content management and archivingsystem, Data security, mining andMIS;

Assistance with fund raise (in un-regulated areas);

Transaction support includingvaluations.

PwC Value Proposition

PwC India has a dedicated NationalEducation specialist team across the variousLines of Services and offers a comprehensiverangeofservicesspecictotheEducationsector. In particular, for Foreign Universities,

we could offer the following customizedservices:

Joint venture partner search;

Demand/Market Assessment & Feasibilitystudies;

ProjectViability/BusinessModels;

Tax and Regulatory:

- Obtaining necessary regulatoryapprovals for the collaboration;

- Assistance with collaborationagreements;

- Appropriate entry strategies/holdingcompany structures for the India

ventures;

- Entity forms/tax impact on incomeows;

- Analyzing possible exposures ofcreating taxable presence for ForeignInstitutions and suggesting ways tomitigate the same;


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AICTE All India Council for Technical Education

BCI Bar Council of India

CAGR Compound Annual Growth Rate

CSIR CouncilofScienticandIndustrialResearch

ERP Enterprise Resource Planning

FDI Foreign Direct Investment

HE Higher Education

ICSSR Indian Council of Social Science Research

ICAR Indian Council of Agricultural Research

MCI Medical Council of India

MHRD Ministry of Human Resource Development

MIS Management Information System

NAAC National Assessment and Accreditation Council

NBA National Board of Accreditation

NCTE National Council For Teacher Education

PCI Pharmacy Council of India

UNESCO UnitedNationsEducational,ScienticandCulturalOrganization

UGC University Grants Commission

Glossary


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West

Poonam PrabhuPhone:+912266891416Email: [email protected]

ContactsDhiraj MathurNational Education LeaderPhone:+911243306005Email:[email protected]

Nikhil BhatiaNational Tax Head- EducationPhone:+912266891488Email: [email protected]

North

Nidhi KansalPhone:+911243306124Email: [email protected]

Rahul DhandhaniaPhone:+911243306043

Email: [email protected]

East

Ashok VarmaPhone:+913344043099Email: [email protected]

South

Sriram BPhone:+91442285055Email: [email protected]


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AK 407 - October 2012 India: Higher education sector.inddDesigned by: PwC Brand and Communications, India

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