Tax incentives: An effective tool for increasing investment in the education sector
In a previous article, I explored the pivotal role investment in Azerbaijan’s education sector plays in driving national economic growth and development. Education is the foundation of a prosperous society, and for Azerbaijan to secure a brighter future, we must act now to ensure targeted and effective investment in this critical sector. A strong education system is not only about academic excellence but also about economic growth, workforce development, and global competitiveness, writes Tale Heydarov.
In this follow-up piece, I build on this argument and emphasise to unlock the full potential of our education system, bold reforms are essential. This includes restructuring the taxation system and implementing initiatives to attract leading global institutions and brands, all of which would serve to foster innovation and elevate the standards of education in Azerbaijan.
One effective way to boost investment in education is through tax rebates. This allows investors to reduce their taxable income or receive a partial refund for investing in educational projects.
Global experience: Successful approaches of Saudi Arabia, the US and China
Globally, tax incentives have proven to be powerful tools for channelling funding into priority sectors. Saudi Arabia, for example, provides lower tax rates and exemptions for foreign investors in education, reinforcing its Vision 2030 goals. Such policies led to an 86% increase in investment licenses for the country’s education sector in the second quarter of 2024, signalling the growing appeal of the industry to businesses.
Azerbaijan could consider adopting a similar approach by exploring tax rebates for companies and investors who contribute to the education sector. This might include incentives for funding new schools, universities, and research institutions. Such steps will help enhance education quality while also encouraging long-term private sector participation.
Beyond tax rebates, philanthropic contributions to education should also be incentivised. In the United States, charitable donations to universities and schools come with significant tax benefits, encouraging billions in private funding each year annually. Notably, in 2023, nearly $88 billion was donated to educational organizations in the US, marking an 11.1% increase from the previous year. China has also implemented similar policies, allowing individuals and corporations to reduce their taxable income when donating to educational institutions.
Incentives for charitable donations and tax incentives breaks
It would be beneficial for Azerbaijan to introduce tax deductions, specifically for philanthropic donations to schools, universities, and research centres. By allowing individuals and businesses to deduct these contributions from their taxable income, the Government can foster a culture of giving and corporate social responsibility. This would encourage sustained private support for educational initiatives, scholarships, and infrastructure development.
It is important to also note that tax incentives will not burden the government financially. In fact, they have the potential to generate significant revenue and create job opportunities. By saving investors’ money, these incentives can drive much broader economic activity and job creation in sectors such as construction, education, and administration, all of which contribute to the country’s tax base.
Attracting world-renowned education brands
However, while tax incentives are crucial, a robust education system requires more than just financial contributions. Infrastructure, curriculum innovation, and talent retention, for instance, are equally as important. In fact, the European Centre for the Development of Vocational Training found tax incentives are most effective when used alongside broader policy measures.
One compelling strategy is to attract international education brands to Azerbaijan, a trend already emerging with ADA University in Baku. The university has become an increasingly popular choice for both local and international students, particularly through its Italy-Azerbaijan University project.
The Government will likely find much value in actively engaging with global universities, ed-tech firms, and vocational training institutions to establish local campuses and partnerships, fostering knowledge exchange and enhancing the education sector. Countries such as Singapore and Qatar have successfully attracted elite universities such as MIT, Georgetown, Texas A&M, and Carnegie Mellon, creating thriving knowledge hubs.
Azerbaijan can adopt a similar approach with a strategic plan to leverage top-tier institutions, particularly in fields where there are skill shortages or sectors aligned with the country’s long-term economic goals. This would not only improve education quality but also enhance Azerbaijan’s reputation as a regional education hub.
Free education zones: A new model for innovative development
Another proven approach to attracting investment is the establishment of free zones for education. These zones offer tax benefits and regulatory advantages to international universities and research institutions, encouraging them to set up campuses and collaborate on academic research.
The United Arab Emirates stands as a powerful testament to this model. By establishing education free zones with streamlined regulations and investor-friendly policies, it has successfully attracted world-class institutions that have become deeply embedded in the Emirati education system. This has led to the creation of institutions such as the American University of Sharjah, Cambridge International School, and Australian International School.
Additionally, districts such as Dubai International Academic City and Dubai Knowledge Park serve as exemplary models of public-private partnerships. In these districts, investors either build and oversee the universities themselves or the government develops the necessary facilities and leases them to private investors, thus strengthening the overall educational infrastructure.
Such policies have not only elevated education standards but have arguably transformed the UAE into the global example of best practice. With the country’s higher education market projected to generate over $24bn by 2030, this success offers an inspiring model for Azerbaijan, providing valuable lessons for aligning with its own ambitions.
For Azerbaijan, establishing a dedicated education free zone in Baku or another strategic region could attract global universities, ed-tech companies, and research institutions. Furthermore, by offering special incentives, such as simplified visa processes for foreign faculty and research grants, Azerbaijan could significantly enhance its attractiveness as a leading education destination.
Azerbaijan's new education initiatives and future prospects
Such steps are gradually being taken, as seen with the launch of the Baku Master Plan in 2023. This initiative not only aims to address the city’s public transportation challenges but also includes the development of a new university campus. The plan is commendable, as it holds the potential to expand educational opportunities while helping to ease economic burdens such as growing traffic congestion. That said, the government has yet to finalise the location, and swift action will be crucial to ensuring the success of this important project.
Encouragingly, the country has already taken an important step in this direction. Recent reforms to Article 106.1.18 of the tax law now provide a tax exemption on profit tax for certain donations to educational initiatives. This allows investors to deduct up to 15% of their profit when donating to approved educational organizations, reducing their taxable income and overall tax burden.
This is a promising start, and the government will likely find continued support by expanding these incentives to encourage even more philanthropic investment in education.
Strategic impact of tax reforms on the education sector
Once again, I want to stress that these initiatives do not drain the economy nor put a financial burden on the government; rather, they promote economic growth, job creation, and educational advancement. However, timely action is crucial, as our neighbours are not waiting for us. With the rise of AI, the potential losses we may face in the future could be far greater than we currently realise.
To become a hub for knowledge and research, Azerbaijan should expand such initiatives to create an environment where top-tier educational institutions and investors feel welcomed, supported, and incentivised to contribute.
This effort should build on the success of Azerbaijani universities in improving their global rankings. Most notably, Baku State University and Azerbaijan University, which have secured a place in the top 500 of the Shanghai Ranking for the first time.
Tale Heydarov,
Founder of the European Azerbaijan School, TEAS Press Publishing House, and the Libraff bookstore chain
By implementing comprehensive tax reforms, attracting global education brands, and fostering a strong regulatory framework, the country can lay the foundation for a dynamic and forward-thinking education sector.
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