A Five-Plus-Ten Tax Formula Based Trust Fund and Vouchers to Improve Public Education in Nepal

Alok K. Bohara, Ph.D. Professor, Department of Economics, University of New Mexico, NM, USA


Despite much progress in the private education sector in the post-1990 democratic era, a dangerous segregation is taking place between the rich and the poor in the education sector. Wealthy families have access to high quality education offered by expensive private schools and colleges, whereas a vast majority of poor and disadvantaged students are stuck in the ailing public education sector. The new government’s attempt to chart a new educational strategy is a welcome sign. Imposing quotas, price control or nationalization will be counter productive. What follows below is an attempt to offer an innovative mechanism to help underprivileged families have an access to quality higher education through a trust fund.


In Nepal, a dangerous segregation is taking place between the rich and the poor in the education sector. Wealthy families have access to high quality education offered by expensive private schools and colleges, whereas a vast majority of poor and disadvantaged students are stuck in the ailing public education sector. The goal of the Ministry of Education and Sports on its website: “All people, including most disadvantaged and excluded, must be guaranteed access to education of decent quality” does not match with the ground reality. The public education quality is no more decent, and the alternate quality educational opportunities are hardly affordable.

Out of 55,000 graduating School Leaving Certificate (SLC) students, an overall 29% (16,000 students) success rate for the public schools and 17% share in the first division class (4,000 students) are not good signs. Furthermore, the only option for many of these 16,000 financially disadvantaged students is to go to publicly funded, over crowed, politically unstable, and low quality colleges and universities. The rest pay Rs 2000-6000 per month to go to private colleges and universities. Some even have the luxury of going abroad to India, Australia, UK, and America.

Within the last ten years alone, loans and grants totaling more than US $ 100 million from the Asian Development Bank and the World Bank have gone into various institutional capacity building projects, which includes special care to meet the needs of children for disadvantaged group. Primary education has been free for sometime too. Yet, the middle and lower middle class families are leaving the public school system in droves in favor of expensive private schools.

Poor quality, frequent lockups, violence, political influence, and agitations on the streets have created a cancerous environment in our education sector. In a country with an average per capita income of Rs 15,000 per annum, a literacy rate of 50%, and 30%-40% of the population under the poverty line, such polarization has proven deadly. My proposal complements the existing effort but advocates an innovative mechanism to reverse the deteriorating trend in our public education. The benefits are immediate with long run implications.

Historically, education has been the best equalizer in many societies. Even the world capital of free market, America, provides free education up to the high school level for all of its citizens: rich, poor, whites, and non-whites. The challenge for Nepal is to give its poor population an opportunity to have a fair access to quality education. The overly restrictive regulations on the private sector are not the answer.

The recent demand by the agitating student organizations asking private schools to set aside as scholarships 25% of the total school capacity seats for “poor” students or forcing them to reduce tuition may be well intended, but it will have negative consequences. Such a price control will generate anomalies such as, capital flight to India and deterioration in in-school services. It will also discourage innovations in the production of education. The point is that a healthy private sector can be constructive in helping the public sector, and my proposal strikes that balance.

The proposed voucher system uses five percent tax from the total revenue generated by the private schools and colleges (i.e., all higher institutions). There are 1.5 million students in eighty-five hundreds private schools, and about 70,000 students go to about 250 private colleges. Using a conservative amount of Rs 1,500 as a monthly charge, the five percent tax revenue will yield about Rs 1.413 billion for the trust fund. The second portion of the trust fund relies on a ten percent levy –about Rs 1 billion– from the sin taxes on alcohol, tobacco, and casinos.

Jointly, the five-plus-ten tax system can raise Rs 2.413 billion worth for the trust fund. Both sectors, being on the target list of the Maoists, should not mind contributing five and ten percent of their revenues respectively to this noble cause. In return, the government and the agitating students organizations should not be imposing too much unfair regulatory controls on them.

The proposed voucher system has many advantages. The immediate benefit is that it finances the SLC graduates coming out the public school system to go to colleges of their choice. It gives incentives to public schools and colleges to improve.

The public schools would be improved by having to compete to matriculate students with the vouchers that can be spent anywhere. The financial incentive rewarded based on the number of successful graduates and other reward mechanism will also motivate these schools to improve.

Further, the publicly funded higher education system would not be overwhelmed from having to admit thousands of financially disadvantaged graduates into their system every year. The public university system is also likely to be free from political turmoil. Smaller class sizes and an opportunity to raise tuition fees on those who can afford will only make these public universities more competitive. These and other features of the proposed mechanism are highlighted below:

  • The five-plus-ten percent tax revenue from two sources raises Rs 2.413 billion annually.
  • Rs 1.356 billion of student voucher monies will be spent as follows: The SLC first division students (4,000, 17% of the total number in that class) coming out of the public schools will get 5 years of education vouchers to go to colleges of their choice (Rs 2,500 per month on average), assuming that their preferred science discipline will cost more. The remaining 12,000 SLC students will get vouchers (Rs 1,500 per month on average) for an average of 3.5 years of schooling, which may include, for many students, a technical and vocational education with reduced number of schooling.
  • The ten percent of the trust fund (Rs 241.3 million) is set aside to reward the well performing public schools (Rs 15,000 per SLC passing student) to be used for their quality enhancement.
  • The remaining 1.057 billion rupees can be used to improve the quality of public schools in various ways: 25% (Rs 264.3 million) for competitive grants, for example, for computers and equipments; 75% (Rs 792.8 million) for vouchers to cover additional SLC students who matriculate after the second round of attempt, or to provide vouchers for the vocational and technical education for those who fail the SLC exam.
  • To encourage publicly funded higher education, the college voucher for the public education sector may be about 25% more than for the private vouchers.
  • To break the monopoly of the capital city Kathmandu, the voucher and the competitive grant component of the trust fund, totaling Rs 2171.7 million, should be distributed across the five development regions on the basis of population to encourage the development of educational sector in those regions.
  • In the second phase, the proposal also recommends using certain percent of the future earnings from the regional hydropower to go into education and health welfare of that region. A better-endowed trust fund can, among other things, further promote the trade and technical school training programs to enhance the manpower export industry. It can also provide low interest rate loans for students to cover expensive discipline such as, medicine and engineering.

The mechanism of the system, taxing sources, and the rationalities are developed below.

Emergence of Private Education Sector

The private education sector’s success in providing high quality education began with the introduction of free market about 20 years ago. In education sector, it has prevented a significant amount of capital flight to India and other nations. Further, Nepali entrepreneurs have shown their ingenuity in building one of the most important institutions in a society. Testimony to that are five universities, including an autonomously run private Kathmandu University (KU), twelve medical schools, thirty two engineering colleges, and scores of business schools and more than two hundred private colleges. Similarly, millions study in privately run eighty five hundred schools all across the country. Many high school graduates are now getting college scholarships to study in prestigious universities and colleges in America, United Kingdom, Australia, and Japan.

But, for millions of Nepalis, who attend public schools and colleges, the story is quite different. A dangerous polarization has begun to occur between the poor and the rich in their educational attainment. For example, many businesses prefer MBA graduates from Kathmandu University rather than from Tribhuvan University. You also find a salary gap between the two graduates. But, the market cannot be blamed for making such a product differentiation and rewarding them accordingly. And also, the solution is not to padlock Kathmandu University or target them for public humiliation. The Indian market is always ready to fill in the gap if such progress is hampered in Nepal. So, the policy makers and these highly lucrative educational enterprises must find a common ground solution to show a sense of social responsibility. The public education system must be helped to thrive. This proposal attempts to do that.

Cost of Education: Public and Private Sectors

There are close to 26,000 schools with a total population of 5 million students, of which about 1.5 millions go to eighty five hundred private schools. The cost of private schooling varies across the board. Monthly tuitions, deposits, hidden fees, and service charges for extra curricular activities make it very difficult to ascertain the exact cost for schooling in these private schools. And they range in price.

For example, the tuition cost for a highflying American affiliated school –Rato Bangala—is close to Rs 90,000 per year, not counting other fees. Shuvatara School charges Rs 65,900, and Little Angel’s cost is Rs 36,000 for its day scholar and Rs 72,000 for a border. These are high-end schools with very good quality education. But my point is to put it in the context of our own per capita income of Rs 15,000 per year. With close to 30-40% of our population under poverty line, you can imagine as to whom these schools and thousands like them cater to. Even a conservative amount of Rs 2000 per month for a typical private school (Rs 24000 per year) will be out of reach for many millions of our Nepali poor. A social disparity like this has to be eradicated.

The story at the post-secondary and higher level is similar. There are five universities, and Tribhuvan University is the oldest with 62 affiliated public campuses, and they educate about 142,000 students. The fee structure is minimal, and so is the quality. The quality of faculty resource is excellent, but student and faculty politics, controlled and outdated examination and curriculum system, lousy pay, horrendous promotion system, dismal infrastructure are just some of the reasons contributing to their waning reputation. Consequently, many faculty take up lucrative multiple teaching jobs at private colleges and perform consulting exercises for numerous NGOs and private consulting firms, all the while maintaining their affiliation with Tribhuvan University. Basically, hundreds of millions of taxpayers’ money is being used in subsidizing private teaching and research enterprises. Innovative ways and drastic reforms measures must be adopted to reverse this, but that is not the focus of this article. Tribhuvan University also gives affiliation to additional 190 private campuses with the student population of 62,000 (source: VOL. 22, NO. 28, JAN 24 – JAN 30 2003; Spot Light).

As for the tuition cost of higher education, it can vary anywhere from Rs 2,000 to 6,000 per month depending on the disciplines and the campuses. Some private campuses outside the valley may be relatively cheaper. On the other hand, the medical and engineering schools’ upfront deposits of several hundred thousands of rupees makes it difficult to sort out the monthly cost. Nonetheless, technical schools are quite expensive by any account.

The other four universities are Purbanchal, Pokhara, Sanskrit, and Kathmandu University. These universities have about 100 affiliated campuses, with a combined student population of 10,000. That is, the oldest university and the taxpayers take the burden of educating almost 142,000 students directly out of a total of 210,000 students. It is fair to estimate that almost 70,000 students go to privately run higher institutions, leaving about 66% to be handled by the TU system.

Assistantships like the ADB loan of 2.34 billion ($30 million) is important to help ailing school system to, for example, train women teachers and invest in infrastructure, but an immediate solution is required to avert the crisis, and this proposal focuses on that. This proposal provides help directly to the needy students.

Harmful Regulations

Any price control or a quota system on the private education sector will generate anomalies such as, capital flight to India and reduction in services. It will discourage innovations. Restriction in entry due to price control will restrict supply and will create an excess demand. This will put an upward pressure on price, and with a fee and tuition cap (e.g., Rs 1000), the profit driven schools will begin to charge hidden fees and slash services. The concept of non-profit schools should be vigorously promoted and should be given reasonable governmental subsidies such as, the reduced import duties and the tax exemption status. Currently, many schools are run as private businesses.

The point is that a healthy private sector can be used to achieve a larger public good. Privately run educational enterprises that are engaged in price gauging practices should not be left unpunished.

The Proposal: The Trust Fund

There are countless ideas, some well funded by various international organizations like the Asian Development Bank and the World Bank, to reform our public education system: reforming the ministry, cutting down bureaucratic expenses, parental and community oversight, decentralization, international grants for infrastructure and training. Yet, a vast majority of the public schools are still over crowed, ill equipped, and politically unstable. Poor families with smart students fall in this vicious cycle. Many middle class families have abandoned these schools in favor of the private ones. However, efforts are being made by the Education Ministry to reverse the course. The task is simply Herculean. A 29% share in the national SLC examination results is just a simple example of its dismal performance.

The proposed mechanism does not put any onus on the ministry or its initiatives. It actually complements their effort directly by providing support to the needy students and by rewarding the well performing public schools. The funding mechanism does not take any resources from the education budget; instead, it is created using some new sources.

There are two types of sources to create the trust fund: taxes from the private educational enterprises and the governmental matching fund from its alcohol, tobacco, and gambling tax revenues – sin taxes. My proposal based on a five-plus-ten education tax formula suggests a five percent taxes on the private education sector and takes ten percent of the revenue from the sin taxes. The total amount of Rs 2.413 billion raised in the trust fund can vary over time depending on the growth in these sectors. The details are provided later.

Targeted Population: Public School Students

Of the 170,389 students who took SLC exam, 32.05 % passed (54,607), of which only 29% of the successes, 15,836 passes, came from the public schools. The government’s share in the top first division category was only 17% (3565). Our main concern should be to educate these 16,000 or so students coming from the public schools with the poor financial background. Of the total 55,000 students who pass the 10th grade SLC exam, the proposal targets 16,000 of them –the public schools’ share. The duration of support can range anywhere from two years of vocational education to five years of colleges. The five years of college includes the post-secondary education known as the plus 2; the remaining 3 years covers the bachelors program. The funding amount would have to be adjusted if the educational institutes were to go for a four years bachelors program. The trust fund is replenished every year with the 5 plus 10 taxing formula.

At least two years of public education of 9th and 10th grades would have to be imposed as a requirement to qualify for such funds to avoid any abuse. It is important to have at least two years of commitment for any parents interested in taking advantage of the opportunity provided by the trust funds.

Trust Fund I: Five Percent Education-for-Disadvantaged Tax Levy on Private Schools

There are two components in the trust fund, and this section describes the component raised from the private education sector using a five percent tax levy. I will use some guesstimates, and show the voucher mechanism and the funding formulas.

Assume that the eighty-five hundreds private school students of 1.5 million on average pay Rs 18,000 per year (Rs 1,500 per month) to generate 2.7 billion rupees. At the college level, I will also assume a similar conservative amount of Rs 1,500 per month paid by 70,000 private college students to come up with a grand total revenue of 28.26 billion rupees. A five percent levy on that will generate Rs 1.413 billion for the trust fund.

To private school owners, this mechanism is much better than a 25 % fee reduction or a 25% quota system they are being asked by the agitating student organizations, not to mention all the political turmoil, violence, and padlocks they face frequently. The government, in return, should allow these private schools to operate freely without any unreasonable regulation nooses.

These levies can vary across different types of schools based on the fee structure and the financial status, but the maximum cap should not exceed 10%. This is just an illustration and much accurate calculations must be performed.

Trust Fund II: Education-for-Disadvantaged Sin Taxes

The second component of the trust fund is covered through sin taxes. Tobacco and liquor industries employ thousands of Nepali workers and have been a major source of excise revenue for the government (20% of the estimated Rs 55 billion revenue; source: VAT Office, Kathmandu). The combined revenue from the excise duties and the value added taxes on tobacco and the alcoholic beverages amounts to Rs 9.6 billion. In addition, the casino revenue adds another Rs 70 million to the government coffer (source: Nepal Recreation Centers). The 20% share of this sector in the total revenue for Nepal is not trivial. The ten billion rupees of amount, and growing, is quite sizable even when compared to the education and health budget amounts of 8 and 4 billion rupees, respectively. So, an all-out-attack on this industry, awhile back by the Maoists, may be shortsighted, and will hardly solve any social problems.

For example, banning alcohol will encourage black market and crime, and will drain governmental resources towards enforcement. Thousands who work in this sector will also suffer. With an open border with India, it will be hard to make much dent. In the early 1920’s, the American government tried banning the production and consumption of alcohol. It fostered organized crime and the import of cheap smuggled alcohol became a larger health problem. Canada and Mexico benefited from such restrictions in the US. The law was repelled later. In Nepal too, we can take advantage of this lucrative industry for the purpose of a larger public good – educating our poor.

Setting aside even 10% of ten billion for the education-for-the poor trust fund will generate about Rs 1 billion. This industry’s growing trend can only be good news for the trust fund in the future.

Such a transfer, however, should be compensated by raising sin taxes, capturing peace dividend (reduced military spending), or even securing some international grants, so that the over all budget is not affected. Malaysia uses such sin taxes to fund its sports and health programs.

Trust Fund III: Other Potential Sources

This section describes some additional sources of revenue that can be tapped to enrich the fund, especially in the future when the program begins to show its success.

The ideas of supplementary resources can vary, and one such example could be to use the regional lottery scheme for education. In New Mexico, USA, revenues from the state lotteries are used to give “lottery scholarships” to thousands of students, thus opening the doors for poor minorities.

Similarly, each development region can be empowered to raise funds through the sales of any future hydro electricity in their region. Such guaranteed shares can invigorate incentives for regions to mobilize its vital resources. The current estimated revenue from the electricity sales for 2001 is about Rs 8 billion, and any future energy generation in different regions will have a tremendous potential to enrich such funds. Doubling this capacity and a 5% education surcharge to be spent in the region will raise about Rs 400 million, or close to Rs 100 million for each region. It must be included in the long run development strategy of our regions, especially in the field of education and health. Such earmarking strategy has been tried in other countries. The current proposal does not use any of these supplemental funds in its calculation, but leaves a door open for the future.

In order to secure a World Bank loan ($200 million), the parliament in oil rich Chad had to pass a law guaranteeing 80% of its oil revenue for education, health, and rural infrastructure, plus 10% in a trust fund for future generations. A similar idea can be worked out in Nepal to ensure that a percentage of the benefits from the regional hydro projects directly go to the people of the regions for education and health and not to the central bureaucracy. By earmarking funds for education, the enriched trust fund can be used to enhance the capacity of the vocational and trade schools in each region. The current proposal focuses on two sources for the illustrative purpose.

The Trust Fund and Voucher Mechanism

The trust fund of about Rs 2.413 billion from the two sources described above is a gross estimate, and some detailed calculation must be done to arrive at a more accurate figure. There are five items for consideration under this system.

  1. Direct Merit-based Grants for Public Schools

    The proposal sets aside10% of the trust fund –Rs 241.3 million– a reward system for schools based on their graduating record. With 16,000 students (29% share of the total 55,000) graduating from the public system, the per-student share comes to about Rs 15,000. The school board can use this non-trivial amount of per-student merit reward to improve the quality of operation as per its discretion. Having to compete to produce successful graduates, who would be rewarded vouchers, is good for the public school system.

    There is a provision in the budget that if a public school graduates 50% in SLC they will get Rs 400,000 of which two for incentives for teachers and the remaining two for the improvement of the school’s infrastructure. Many schools tend to weed out weak students to improve the success rate. That aside, the proposed mechanism only complements the existing effort to improve.

  2. Higher Education Student Vouchers

    The objective of this mechanism is many folds: (1) helping poor public school students access quality education and that must include choice of private colleges and universities, (2) promotion of vocational and trade education to produce export quality skilled workers, (3) improving the quality of public higher education, (4) induce competition, and (5) bring a regional balance in higher education attainment in five development regions.

    With Rs. 241.3 million used for merit reward for schools, the remaining Rs 2171.7 million has to be allocated efficiently in various ways. There are some unknown parameters that can vary and such variations must be incorporated into the simulation exercise.

    For example, the scenario may deviate if the students were to gravitate towards the vocational trainings. Similarly, the duration of our higher education system is confusing too, especially regarding the +2 and the undergraduate program. Some colleges and universities are gradually gravitating toward a four–year system. And, many high schools offer additional 2 grade levels of 11th and 12th –post secondary +2’s. Furthermore, some additional number of students may get into the pool after they get through the second round of the SLC examination.

    These changes should not be that difficult to adjust in the allocation formula. And, my proposed trust fund will have enough cushions to adjust these changes. I will proceed with my illustration.

    The 4000 or so high achievers in the SLC examinations, who ranked in the first division class, are most likely to go for business and hard sciences, whereas the rest of the 12,000 are likely candidates for other disciplines. Assume that the 4000 high achievers go for a 5 years of college education, whereas 12,000 students strive for a 3.5 years of average schooling that would include vocational training for some. The cost of educating the 4000 first division students can be assumed to be more than the for other disciplines.

    Assuming the monthly rates of 2,500 ands 1,500 at the two categories respectively, the total amount of the student voucher will be Rs 1728 million. The simulation can be performed using different scenarios.

  3. Competitive Grants for Improving General Quality

    After spending 241.3 million on the merit reward based on the high school graduation and 1728 million in student voucher, the trust will have a healthy account of 1057 million left to consider other incentive based mechanism.

    Maximizing the student population in public school should not be the singular goal. The coverage of affordable quality education for our children, regardless of the providers, should be of concern. The government’s involvement is just one of the options. There are no shortages of students. More than 18,000 schools accommodate about 4 million students. But, large class sizes, ill-equipped schools, poor quality education, and political turmoil have driven many middle and lower middle class parents to seek out private schools. Reforms measures to attract them back into the public school system should receive high priority. The proposed voucher system for the SLC graduates will be helpful in that regard.

    The trust fund will have about 1057 million rupees, which can be used for the purpose of various incentive based mechanisms: 25% of the fund can be used for competitive grants to buy computers and other equipments, creating magnet schools, rewarding schools for instituting innovative reforms like community and parental involvement, seed money for fund raising activities. The remaining funds can be used in providing vouchers to take care of public school students who graduate after taking the second round of SLC examinations or to promote the technical and vocational education for those who fail the SLC exam. These ratios can be altered depending upon the needs.

  4. Promoting Public Higher Education Sector and Vocational Training
    Since this mechanism allows students to freely choose higher institutes of their choice, we must build some mechanism to give some added incentive for choosing the public colleges and universities, for example, by making the public voucher 25% more than the private school voucher.

    An added monetary incentive may prompt many students to opt for the public colleges. This will be good news for the public sector higher education, but the sector too has to improve its quality to earn these vouchers.

    A similar differential monetary incentive mechanism can be devised to support and promote the vocational and trade schools, so that those students who cannot go to top science and business schools, can have at least monetary incentives to go for a technical training. It will reduce the number of years of support and will save some resources.

    The public higher education system will also be freed from having to admit for free thousands of poor students coming out of the public school system. With many disadvantaged students on vouchers, the private colleges and universities can now implement devices to raise funds to improve their infrastructure and quality. Their class sizes would be smaller too.

  5. Educational Equity Across Five Development Regions.
    One major problem in our educational scenario is the disparity in education across our development regions. The Far-West and the Mid-West are the most backward regions in the country according to numerous human development indexes: illiteracy, nutrition, math scores, per capita income, industries, just to name a few. They also rank at the bottom when it comes to medical and engineering colleges, and other types of schools. The Far-West even does not have a university system. The Mid-West just has a token one.

    Several million rupees of these voucher monies will give boost to education status of these regions. A sense of competition will also improve quality.

    Aside from the merit reward for the graduation rate (Rs 241.3 million), the remaining resources (Rs 2171.7 million) should be distributed across the five development regions based on the population share. Such funds will create incentive to open up vocational and other types of colleges in the regions. A rough estimate of the regional population figures of 5, 8, 5, 3, and 2 million distributed across East, Central, West, Mid-West, and Far-West, respectively will allocate the funds as follows: Eastern (22%), Central (35%), West (22%), Mid-West (11%), Far-West (10%).

    If the trust fund begins to grow, there will be enough saving in the trust fund to support those high school dropouts to get vocational training through a similar voucher system (e.g., one or two years), which will enhance our manpower export capacity. In addition, some monies can even be used for competition grants for public school system to buy equipments. The third and important element to consider in the future would be to issue low-interest rate loans to students. This is especially helpful for the engineering and medical students.

    The trust fund authority will have the right to recalculate the value of such vouchers and will also have an authority to audit and investigate any violation complaints. This system should not require a huge bureaucracy to manage it.

The Long-run Scenarios

Many well-intended middle and the lower-middle class families, especially those on the margins, may join these schools for obvious benefits –subsidized higher education for their children. If the higher-middle class families switch their children to public schools at grades 9 and 10 to qualify for the funds for higher education, it will be hard to imagine for them to tolerate a sub-quality education outcome for their children. A higher success rate is only good for the public education program and the dedicated parents.

So, an attractive voucher system will enhance the demand for public education especially at the 9th and 10th grades. Motivated middle-class parents’ involvement will help improve the quality of education in public schools, especially when the successful schools begin to earn the merit money of Rs 15,000 for every passing student. The competing private counterparts will have to start lowering their prices to stop the attrition, especially for 9th and 10th grades. Better quality at public schools, and lower prices at the private sector are the desirable outcomes in the long-run.

With many disadvantaged students on vouchers with a freedom to choose colleges, there will be less pressure on the public university system to admit thousands of students every year. The political turmoil plaguing the public university system will also begin to diminish. Further, the universities may be able to put their financial house in order. That is, raising tuition fee to improve quality would less likely to invite student retribution and violence. Class sizes would be smaller too. Importantly, the public universities would have to compete for the voucher monies, and the administrative leadership would be forced to adopt far-reaching progressive reforms. In fear of going out of business, professors too have to begin devoting more time in institution building and less time in consulting and other off-campus teaching activities. Basically, the proposed trust fund system raises all boats, like a higher tide.

It is not supposed to be an alternate to government’s regular education program, but can act as a complement to produce positive results immediately, especially for those 16,000 disadvantaged students coming out of the public schools every year.

In the future, if the system succeeds in supporting the college education for poor, the program can be expanded to include vouchers for high school dropouts for their vocational education, and also to cover other lower grade school children. This private public partnership using the five-plus-ten education tax formula has a potential to solve the education problem in our public sector.


Investment in human capital is important to create economic growth. As we enter the Twenty First Century, we need to have skilled work force to be a part of the globalization to reap the benefit that is accruing all around us, especially in the double-digit growth countries India and China. As the access to quality education becomes remote for a vast majority of Nepalis, the dream of a better living standard remains confined to those who can acquire expensive and private education. A vast amount of bureaucratically ridden investment funding through the Ministry of Education will not make much dent to our education quality, at least not in the foreseeable future.

My proposal suggests a five-plus-ten percent education tax to create a trust fund using a 5% tax on the private school and colleges and a matching government fund through its highly lucrative revenue from (10%) the sin taxes such as, alcohol, tobacco, and gambling casinos.

The public school graduates can take these vouchers to attend any higher institutes of their choice – private or public. There is monetary incentive for public schools to improve too. The public universities and colleges will be less pressured to admit thousands of students for free. Political turmoil on public campuses is likely to diminish, and it forces them to be more competitive. It also addresses the socio-economic gap problem immediately with fruitful results.

As the nation moves towards a more decentralized administrative structure at the regional levels, a certain percentage of the proceeds from the hydropower in the region can be earmarked to enrich the fund, which can then cover a wide range of other needs of public education.

This should be of interest to those who care about our nation’s future. I urge all the political parties to unite and consider this mechanism seriously.

(The author would like to thank the following individuals for their helpful comments: Prof. Phillip Graves, U. of Colorado; Prof. Allen Parkman, U. of New Mexico; Prof. Emeritus Micha Gisser, U. of New Mexico; Dr. Devendra R. Panday, Former Finance Minister, Nepal; Mr. Madhukar S. Rana, Chief Economic Advisor to Ministry of Finance, Nepal; Mr. Mani Nepal, Lecturer, Tribhuvan University, Nepal; and Dr. Rup B. Khadka, DANIDA Project, Nepal. Remaining shortcomings are mine.)

Source: Dr. Alok Bohara


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