Science and education

Tax incentives have long been proven to be one of the most powerful tools for ensuring financial flows to priority sectors worldwide.

Could Azerbaijan also explore opportunities to utilize a similar approach by examining the prospects of implementing tax incentives for companies and investors investing in the country's education sector?

This would stimulate the development of private educational institutions.

Tale Heydarov, the founder of the European Azerbaijan School, "TEAS PRESS" Publishing House, and "Libraff" bookstores, noted in an article he wrote some time ago (link) that one of the effective ways to increase investment in education is through tax incentives: "This allows investors to reduce their taxable income and partially compensate for the investments they make in educational projects."

Education expert Rizvan Fikratoglu told APA that amendments to the Tax Code and recent tax reforms, including incentives for companies investing in private education, could have a positive impact on the sector:

"These reforms could play a crucial role in building modern infrastructure to meet educational demand and developing new innovative approaches. This would also stimulate the growth of private educational institutions and create conditions for introducing innovative methods into the education system."

According to the expert, the private sector can implement a number of modern educational methods that the state may not be able to provide: "These schools and universities can follow more international practices, ensuring the acquisition of globally demanded skills. Private enterprises can invest in various educational fields and new specializations, creating broader educational opportunities. This helps expand both students' and employers' needs for relevant qualifications. Such educational institutions can leverage more technology—digital education, online courses, simulations, and other innovations can enrich the learning experience. The establishment of new research institutes would promote scientific development, potentially expanding the country's knowledge base and fostering new scientific fields."

Economist Eldaniz Amirov adds that private education is a sector that not only improves the quality of education but also strengthens the role of education in economic fields, trains professional personnel for the labor market, and supports the country's comprehensive macroeconomic development. "Supporting the private sector directly means supporting these aforementioned areas."

What does international experience show?

In his article, Tale Heydarov, founder of the European Azerbaijan School, emphasized that tax incentives have long been proven worldwide as one of the most effective tools for directing financial flows to priority sectors: "For example, Saudi Arabia has moved closer to achieving its Vision 2030 goals by implementing lower tax rates and significant tax incentives for foreign investors in the education sector. As a result of this policy, the country saw an 86% increase in education sector investments in the second quarter of 2024, signaling growing business appeal in this field."

Azerbaijan could explore the opportunities to utilize a similar approach by examining the prospects of implementing tax incentives for companies and investors investing in the country’s education sector. This could include stimulating the financing of new schools, universities, and research institutes. Such steps would not only improve the quality of education but also give a boost to long-term projects in the private sector.

In addition to tax incentives, it is necessary to stimulate the attraction of donations for the financing of the education sector. In the United States, there are significant tax incentives for organizations that donate to universities and schools, resulting in billions of dollars in private sector contributions to the education sector each year. It is no coincidence that in 2023, nearly $88 billion was donated to educational institutions in the U.S., which is an 11.1% increase compared to 2022. China has also pursued a similar policy by allowing individuals and corporations that donate to educational institutions to reduce the taxable portion of their income.

What does the Tax Service say?

In response to an inquiry, the State Tax Service stated that tax incentives support the development of sectors such as science, education, healthcare, sports, and culture:

"When making changes to tax legislation, the stimulation of development in sectors such as science, education, healthcare, sports, and culture is always a priority. One of the amendments made to the Tax Code since January 2024 is the increase of the tax-exempt portion of a taxpayer’s annual profit, allocated to enterprises, institutions, and organizations operating in the aforementioned sectors, as well as to funds created for public and social purposes, from 10% to 15% this year."

The amendment serves to enhance the effectiveness of corporate social responsibility programs. Thus, businesses can direct a larger portion of their profits toward financial support for social initiatives without paying taxes. For example, if a taxpayer’s annual profit is 100,000 AZN, before the amendment, they could donate 10,000 AZN, exempt from taxes, but now the limit has been increased to 15,000 AZN.

The State Tax Service also emphasized that the exemption does not apply to public legal entities created on behalf of the state, and it only applies to donations made through non-cash transactions: "Although it was implemented in January 2019, initially, the funds transferred to institutions and organizations operating in the fields of science, education, healthcare, sports, and culture were eligible for the exemption. Since 2021, this exemption has also applied to donations made to public and social funds established for various purposes, such as the Heydar Aliyev Foundation, the Karabakh Revival Fund, and the 'YAŞAT' Fund."

Attracting international education brands to Azerbaijan

While tax incentives play a crucial role, a sustainable and reliable education system requires more than just financial investments. How can attracting world-renowned education brands to Azerbaijan drive positive changes in this sector?

Tale Heydarov, founder of the European Azerbaijan School, highlights that one of the most effective and rational approaches is bringing globally recognized education brands to Azerbaijan: "We can observe this in the experience of ADA University in Baku. Thanks to such innovations—particularly the Italy-Azerbaijan University project—the university continues to grow in popularity among both local and international students.

Exemplary models: Singapore and Qatar experience

I believe that the active collaboration of the government with world-class universities, education technology companies, and vocational training institutions in organizing local campuses, implementing joint projects, expanding knowledge exchange, and developing the education sector can be very beneficial. Countries like Singapore and Qatar have created powerful knowledge hubs by attracting prestigious, world-renowned higher education institutions such as the Massachusetts Institute of Technology, Georgetown University, Texas A&M University, and Carnegie Mellon University to their education systems."

Tale Heydarov believes that Azerbaijan can adopt this approach by benefiting from the experience of the world’s leading educational institutions in its education system, especially in areas where there is a noticeable lack of experience or in sectors aligned with the country's long-term economic goals. This would not only improve the quality of education in the country but also strengthen Azerbaijan's reputation as an education hub in the region.

Education expert Rizvan Fikratoglu believes that attracting prestigious international education brands to the country could lead to global recognition of Azerbaijan's education sector and strengthen the country's position in the field of education:

"The presence of international universities and research centers here could also provide local students with broader global opportunities and connections."

Free education zones: A new approach, new opportunities

Tale Heydarov also emphasizes the importance of the "free education zone" model: "The United Arab Emirates has successfully attracted world-class higher education institutions to the Emirates through free economic education zones with a modern, flexible regulatory system and an investor-oriented policy. These institutions have now been integrated into the country's education system and have established a presence there. As a result of this policy, institutions like American University of Sharjah, Cambridge International School, and Australian International School have been established."

Liberated territories: Towards new education centers

According to expert Rizvan Fikratoglu, the creation of economic zones in the liberated territories of Azerbaijan could significantly impact the development of the education sector: "The establishment of economic zones in the liberated territories and the attraction of world universities and research centers to these areas will create new opportunities for the education sector. These zones could transform into attractive hubs for international academic institutions, while also fostering deeper collaboration between local and foreign researchers."

Elnara Akimova, a member of the Milli Majlis (Parliament) Science and Education Committee emphasized that attracting foreign education brands to the country could be a very positive step, particularly in terms of strengthening relations with world schools, familiarizing with other countries' education systems, and allowing leading specialists in the field to share their experiences:

"Foreign thought mechanisms are always intriguing. If we exist in a unified information space, we cannot limit ourselves to closed loop. However, I believe exchange must be mutual—we too must have scientific and pedagogical achievements to share.

There is a pressing need to establish economic zones in liberated territories and attract world-class universities and research centers to Azerbaijan. This should also be considered as part of ideological work - from a conceptual perspective, with a more strategic approach. When I visited research centers created in economic zones in China, I thought about this. Establishing connections with those schools and research centers and mutually benefiting from them would be successful. Additionally, it is essential to make the innovative approaches of other countries in this field a subject of study

Challenges in attracting foreign brands

Economist Eldaniz Amirov states that attracting foreign educational brands to the country is an expensive process, but not impossible.

"Tax incentives lead to increased investments in this sector, implementation of innovative approaches, improvement of education quality, as well as attracting more professional educators from other fields, and developing educational infrastructure. This may even extend to supporting employment.

If we can establish educational brands in the capital and large cities, we can also attract foreign educational brands to the liberated territories by creating economic zones there.

Currently, the state is doing a lot of work in the liberated territories. However, I believe that attracting and developing foreign educational brands there cannot be solved with tax incentives.

This process requires considerable funding, which can result in extremely high tuition fees for students. Today, students going to branded educational institutions in cities like London, Barcelona, and others are not only going for education but also because of the appeal of those cities—London, Britain, New York. Therefore, establishing foreign educational brands in the liberated territories, until the peace agreement is signed and the economic development occurs, seems like a very difficult issue. However, it is not impossible."