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The time has come to move beyond political promises and take concrete action not only by increasing investment in education but by ensuring that this investment is sustainable, equitable and benefits generations to come.
Sri Lanka’s education system has long been celebrated for offering free, high quality public education enshrined as a fundamental right in the constitution. Article 27(2)(h) of the constitution commits the state to “the complete eradication of illiteracy and the assurance to all persons of the right to universal and equal access to education at all levels.” Despite severe economic challenges, Sri Lanka boasts some of the highest literacy rates in South Asia. Public education has historically served as the primary vehicle for advancing equity, social mobility and national cohesion. According to a 2019 study by the World Bank, the commitment to free education has played a critical role in reducing income inequality and improving human development outcomes across the country.
However, the emergence of private universities has created both opportunities and deep societal debates surrounding equity and the future of free education. In this context, linking taxes collected from private education institutions directly to public education funding offers a visionary solution that could strengthen both sectors while advancing social justice. The Mahapola Scholarship, considered an example of this application, could benefit greatly from such an approach providing increased support to socially disadvantaged students and promoting equitable access to higher education for all.
The rationale behind the link
Private universities serve around 60,000 students, generating significant revenues. Private universities in charge varying tuition fees depending on the programme and institution. For example, undergraduate programmes at the Sri Lanka Institute of Information Technology cost between Rs.2.7 million to Rs.3.4 million, translating to an annual fee of Rs.675,000 to Rs.850,000. Operating costs per student can vary widely based on factors such as faculty salaries, infrastructure and administrative expenses, ranging from Rs.300,000 to Rs.500,000 annually. Subtracting the operating costs from the tuition fees suggests that the annual profit per student could range from Rs.175,000 to Rs.550,000 depending on the institution and programme.
These numbers are best estimates based on available information and are used to strengthen the argument and illustrate the potential scale of impact.
Based on these estimates the total annual profit for the private higher education sector could range between Rs.10.5 billion and Rs.33 billion. With a corporate tax rate of 30%, the government could be collecting approximately Rs.3.15 billion to Rs.9.9 billion in corporate tax from this sector each year.
The potential tax revenue from private higher education institutions could constitute between 0.3% and 1.0% of GDP in 2024. The potential tax revenue from private higher education institutions could constitute between 1.5% and 4.7% of the government’s higher education budget. In 2024, the government allocated Rs.210 billion for higher education.
Earmarking even a portion of tax revenue from private sector education for public education initiatives, such as the Mahapola Scholarship Fund, could significantly enhance equity and access within the higher education system. If a portion of this tax revenue – for instance 20% – is earmarked for the Mahapola Scholarship Fund, it could channel between Rs.630 million and Rs.1.98 billion annually into supporting underprivileged students at public universities.
This model ensures that as private education grows, public education benefits proportionally. It establishes a direct redistribution mechanism where wealth generated from private higher education supports those who might otherwise be left behind, strengthening the foundation of free education in the country.
Equity and the public education nexus
Public education has been a fundamental equaliser, offering children from rural, disadvantaged and marginalised communities access to opportunities otherwise out of reach. Empirical studies confirm that access to free, quality public education has significantly narrowed the rural-urban gap and contributed to intergenerational social mobility. Without sustained investment, however, these gains risk erosion, especially as private education options expand for the affluent while underfunded public institutions struggle to keep pace.
Therefore, maintaining and strengthening the public education system through innovative financing mechanisms is essential not only for economic development but also for preserving social equity and cohesion. Redirecting part of the private education tax income through hypothecation to scholarships like Mahapola would reinforce this equity imperative.
A history of political clamour for education funding
Education has been a deeply emotional and political issue. Student movements, trade unions and civil society organizations have long demanded that at least 6% of GDP be allocated to education, aligning with international standards such as UNESCO recommendations. Massive protests, including university student marches and national strikes, have repeatedly highlighted this demand. Despite these calls, the education budget has hovered around 1.5% to 2% of GDP in recent decades, far short of expectations.
Linking private education tax income directly to scholarships like Mahapola would not only address immediate funding needs but would symbolise a structural commitment to equitable education financing, aligning government action with long standing public aspirations.
The importance of earmarking taxes
Globally, earmarking – formally known as hypothecation – is the practice of allocating specific tax revenues for specific expenditures. It is recognised as a method to build public trust, ensure predictable funding and maintain political commitment to vital sectors. Hypothecation provides clarity and accountability, allowing taxpayers to see exactly how their contributions benefit society. For instance, tobacco taxes funding health programmes or road taxes funding highway maintenance are common practices worldwide.
In Sri Lanka hypothecation is practiced to a limited extent, such as earmarking proceeds from lotteries to education initiatives including the Mahapola scholarships. Extending this principle to corporate taxes collected from private education would reinforce the social contract: those who can afford private education help sustain opportunities for those who cannot. More importantly, it would serve as a powerful political and social signal that the country values education as a right, not a privilege.
Hypothecation also creates a financial firewall ensuring that resources meant for critical sectors such as education are not diverted to less urgent needs, especially during times of fiscal crisis. In a country like Sri Lanka, where public confidence in state fiscal management is often fragile, well targeted hypothecation could significantly enhance transparency and citizen engagement.
Potential benefits
Sustainable Mahapola funding: The Mahapola Scholarship Fund currently operates with an annual budget of approximately Rs.2 billion, sourced from government grants, lottery proceeds and investment income. By linking private education taxes, the fund would gain a stable, predictable and growing revenue stream, reducing dependence on fluctuating sources.
Expanded scholarship opportunities: With additional funding, Mahapola could increase scholarship amounts, cover more students, and potentially extend support to postgraduate studies or new skill development programs critical for a modern economy.
Public support for private education: One major criticism of private universities is their perceived threat to free education. Demonstrating that private universities actively contribute to strengthening public education could foster greater public acceptance and cooperation between sectors.
Encouragement of compliance: Institutions would have an added incentive to fully comply with tax regulations, knowing their contributions are making a tangible difference in the national education landscape.
Strengthening national unity: In a country where access to education is seen as a bridge to social mobility, ensuring equitable opportunities through smart financing mechanisms would reaffirm a sense of national fairness and unity.
Implementation considerations
To operationalise this idea, the government would need to enact legislation that earmarks a defined share of taxes collected from private educational institutions for the Mahapola Trust Fund. Clear governance frameworks, regular audits and public reporting on how funds are used would be essential to ensure transparency and public trust.
Policymakers should involve stakeholders from both public and private education sectors in designing the framework to ensure the model is practical, equitable and aligned with broader educational goals.
Linking private education taxes to the Mahapola Scholarship Fund offers a bold, innovative path to strengthen equity in higher education. It ensures that the growth of private education does not come at the cost of public education but rather enhances it. By adopting this model and formalising it through hypothecation, Sri Lanka can reaffirm its commitment to education as a fundamental right, address long standing demands for better funding and adapt wisely to the realities of a diversifying higher education landscape.