Across the world, governments are being forced to answer a century-old question: Who is responsible for educating a nation’s youth, and who pays for it? In India, controversy surrounding the education ministry has placed the future of the country’s youth at the center of national debate. In the United Kingdom, a new 20% Value Added Tax (VAT) on private school fees signaled that the state was ready to reclaim ground it had slowly ceded to the private sector. Nepal, meanwhile, has arrived at a similar question through a different path.
In its latest fiscal budget for FY 2026/27 AD (2083/84 BS), Nepal reiterates a commitment to public-private partnerships as a driver of national development. Yet, the education sector, where that partnership may be especially crucial, remains marked by decades of unmet commitments and a growing divide between those who can afford quality schooling and those who cannot.
Regardless of a government’s stated intentions, education policy changes land hardest on families. The United Kingdom’s 20% VAT, despite its redistributive intent, drew immediate backlash from middle-income families who argued they were being penalized for relieving pressure on an overstretched public system. Nepal knows this tension well, and has consistently chosen retreat over resolution. Most recently, the government introduced a 3% equity tax on private school fees, framed as a mechanism to redirect resources toward a public education system that received only 10.28% of the national budget in FY 2026/27 AD (2083/84 BS), roughly half of its stated 20% commitment in 2018 AD. Within months, the tax was repealed as the government deemed it put extra burden on the families. This reversal was not unprecedented, and understanding why it keeps happening requires examining three compounding gaps that no single tax mechanism can close alone.
The Pattern of Retreat
In 2002 AD, all private schools in Nepal were asked to contribute 1.5% to a Rural Education Development Fund; however, the scheme didn’t come to fruition. Private operators outright refused to pay the fees, and the government lacked a cohesive collection framework. As a result, the policy was never implemented and was effectively shelved.
In 2008 AD (2065 BS), a 5% education service tax on private schools, introduced by then Finance Minister Dr. Baburam Bhattarai, was established as the “Fairness Principle.” This principle was met with resistance from Private and Boarding Schools’ Organization, Nepal (PABSON) and National Private and Boarding Schools’ Association Nepal (NPABSAN) and was never meaningfully enforced. By 2009 AD (2066 BS), it had been negotiated down to 1% with the condition, secured by the associations, that the tax be passed directly to parents rather than absorbed by schools. By 2018 AD (2075 BS), it was removed entirely.
This latest 3% equity tax was Nepal’s fourth attempt in two decades to create public benefit from the private education sector’s revenue. These cycles reveal not simply that private school associations are powerful, though they are, but that the government has not yet built the political or institutional foundation necessary to sustain education reform against organized resistance.
The United Kingdom: A Case Study
The UK’s 20% VAT on private school fees, introduced on January 1, 2025, serves as a recent model Nepal could look at to understand what standing by education policy against backlash may require, and what it could cost.
Framing the policy as a redistribution effort, the UK furthered its investment into the state sector. Following its implementation, it was predicted that up to 90,000 children could flood into the state sector, triggering mass closures and systemic disruption. In reality, the Independent Schools Council reported a loss of 30,000 students, 47 mainstream private schools closed, and the predicted exodus didn’t actually materialize. Admissions data published by the Department for Education (DfE) showed no significant influx toward state schools, and 85% of families received their first choice of secondary school. About 88 new independent, or private, schools opened in the same period. The VAT is now projected to raise GBP 1.8 billion (NPR 370.73 billion) annually by 2029/30 AD (2086/87 BS), with revenue earmarked for hiring an additional 6,500 teachers.
Nepal’s context differs from the UK’s in one critical way. The UK had the infrastructure, capacity, and necessary support to absorb chance enrollment pressures from the VAT. Nepal’s public system, as Part 1 of this dual-part series documents, does not have these same foundations in place. A 65,000 teacher shortfall, high student-teacher-ratios in areas, and lack of enforcement means the tax would have likely strained a system already at its limits.
The 3% equity tax was not repealed because of Nepal’s private school associations were too powerful. It was repealed because the public system it was meant to strengthen was not yet prepared for what the tax might have sent its way. However, this probable implementation gap did not begin with the tax.
Promises Outpacing Delivery
Fiscally, the UNESCO Education 2030 Framework recommends that 15-20% of the national budget or 4-6% of GDP in Nepal should be allocated to education. Despite the 20% commitment, actual allocation has consistently fallen short. As a share of GDP, education spending has remained relatively stagnant, hovering between 4.1% and 4.4% over the last decade, at the lowest bound of the UNESCO GDP range.
In absolute terms, the cumulative gap between the pledged 20% and the actual allocations since 2018 represents NPR 1.412 trillion (USD 9.255 billion). This shortfall has translated directly to unmaintained classrooms, low salaries, and high turnover among teachers and high attrition rates among students alike.
Regulations-wise, the repeal of the 3% equity tax was not simply a response to backlash, but rather the latest outcome of Nepal’s repeated regulatory pattern. Nepal does not necessarily lack regulatory frameworks for private education. Rather, it lacks enforcement capacity and strategy. After repeated implementation challenges, such as the 2002 AD (2059 BS), 2008 AD (2065 BS), and later 2026 AD (2083 BS) examples from above, the government has demonstrated a gap in cohesion and necessary enforcement frameworks.
Nepal’s classification system, outlined in Part 1 of this NEFtake, followed a similar trajectory. Schools were categorized as A, B, C, or D based on infrastructure, academic performance, teacher management, enrollment, and operational period, with fee ceilings for each category. In practice, a system emerged where schools routinely self-upgraded their categories to access higher fee ceilings, and a self-proclaimed A+ category emerged with no legal basis but effective market dominance. The Institutional School Fee Structuring and Monitoring Committee has not been able to completely control this issue.
The School Education Bill, introduced to Parliament in 2023 AD (2080 BS), was Nepal’s attempt to replace the Education Act of 1971. Following the introduction, teachers’ federations, local governments, civil society organizations, and private school associations opposed different provisions together. This lack of political consensus caused difficulties in enforcing passed legislation.
This pattern also raises the question of what would have happened to Nepal’s public schools if the 3% equity tax did move large numbers of student from private to public institutions. Nepal’s fiscal equation mirrors the United Kingdom’s, but from a different starting position. According to the Atlas Institute for International Affairs, a 1% transfer of students from private to public schools would have lost the government GBP 4-5 million (NPR 823.8 million to 1.03 billion) in VAT revenue while costing an estimated GBP 30-35 million (USD 40.497 million to 47.273 million) to educate those students in the state system. This leaves us with a 1:7 ratio.
At an average private school fee of NPR 39,660 annually per student, a 3% tax would have generated approximately NPR 1,190 per student in annual revenue. Educating that same student in the public system costs the government an estimated NPR 30,000 per year, according to a 2022 Nepal Journals study, adjusted for inflation. This leaves us with a ratio of roughly 1:25. Where the UK risked spending seven times what it earned per student, Nepal risked much more.
Finally, structurally, Nepal’s education sector remains governed primarily by the Education Act of 1971. As mentioned in Part 1 of this NEFtake series, the structural conditions underlying the challenge did not emerge overnight. Since FY 2018/19 AD (2075/76 BS), education spending has been classified across three streams: federal allocations, conditional grants to provinces, and conditional grants to local governments. There hasn’t been a federal education act to govern how those streams work together or what minimum standards should apply. Jurisdictional boundaries between federal, provincial, and local governments remain contested, producing overlapping teacher appointment processes that the Democracy Resource Center Nepal linked directly to habitual absenteeism. This structural deficit, seen across decades, is what has made Nepal’s challenge to implement successful education betterment strategies so consequential.
Thoughts for a Functioning Public-Private Partnership
A functional partnership model would require a careful balance of government intervention and support. From ensuring audit gradings stick to institutionalizing fair budget distribution among schools, the government of Nepal has various possible courses of action. Each would require additional fiscal investment. However, without this initial investment, families and the public will not see new equity fees as anything other than punishments or burdens. There is not a fair alternative in today’s system consistently throughout Nepal.
After significant education investment from the government first, stricter monitoring of the private school sector may benefit all students. PABSON and NPABSAN currently hold great power in legislation, but some of what they counter include requiring additional scholarship offerings. In a more stable education sector, ensuring fair teacher salary minimums, equitable scholarship seats, and further transparency regarding capacity and enrollment will benefit students throughout Nepal.
Ashley is a second-year student studying Economics at Pomona College. She is interested in data-driven approaches to economic development and public policy, with a special interest in education and immigration. Outside her current work at NEF, she is a Development Intern with the Texas Census Institute, works with Global Women Asia, and is a varsity athlete on Pomona-Pitzer’s Swim and Dive Team.
