The proposed budget for FY25 contradicts the Awami League’s election manifesto by providing an opportunity to whiten black or undisclosed money, the Centre for Policy Dialogue (CPD) said on Friday.
In its post-budget analysis, the CPD said that allowing the whitening of black money for a 15% tax, irrespective of the country’s current legislation, is not only unethical but also promotes corruption.
The CPD believes that the proposed FY25 budget fails to provide concrete measures to address ongoing economic concerns, particularly in curbing inflation and providing relief to the poor and those with fixed incomes.
The independent think-tank described this budget as “ordinary” given the extraordinary challenges faced, and criticized the new government for presenting a repetitive budget despite having a new finance minister and state minister.
However, the CPD praised the reduction in project allocations in the Annual Development Programs (ADPs) as health and education were included among the top five sectors receiving the largest budget allocations.
Other aspects they commended included the increased allocation in ADP, the prospective tax structure slabs, and the policy change regarding tax-free cars for MPs.
Finance Minister Abul Hassan Mahmood Ali presented the 2024-25 financial year budget on Thursday at the Jatiya Sangsad.
Whitening black money discourages taxpayers
Fahmida Khatun, research director and head of research at CPD, stated in her keynote presentation that the provision of whitening black money by paying only a 15% tax without question will discourage regular taxpayers.
"We have seen in the last few years that revenue collection does not increase significantly with black money whitening schemes. Instead, it discourages people who routinely pay taxes and rewards those with black money."
"It is not fair for taxpayers to pay a 30% tax on legal income while only being asked to pay 15% on illegal earnings," she added.
CPD Distinguished Fellow Prof Mustafizur Rahman said: "Chapter 3 of the Awami League's election manifesto talks about zero tolerance against tax and loan defaulters. But the budget is giving full amnesty to those who want to turn black money white. If just 15% tax is paid on black money, no one can question the source of that income. Such an amnesty is not only immoral but also economically unproductive, as it does not generate significant revenue."
"It is a political decision. Therefore, it should be reconsidered because such a decision encourages fraudsters and contradicts the AL election manifesto."
The CPD, in its report titled "An Analysis of the National Budget for FY2024-25," stated that in the proposed FY25 budget, a new provision has been introduced to legalize undisclosed money and assets.
A new clause has been proposed to be added to the Income Tax Act, 2023 (in Schedule 1, Part 3) to provide an opportunity to correct an earlier error: "According to the newly proposed provisions, no authority can raise any questions if a taxpayer pays fixed tax rates for immovable properties like flats, apartments, and land, and a 15% tax on other resources, including cash, irrespective of the existing laws of the country."
Under the current Income Tax Act, individuals have the option to legalize their undeclared funds by paying a tax of up to 25%, along with a 10% penalty on the amount owed. Additionally, undisclosed money can be used in property purchases, subject to a location-based tax. Government agencies retain the authority to investigate the source of such funds later on, but that opportunity will no longer exist if the same amnesty is granted now through the change in law.
The CPD strongly argued against this type of provision on the grounds that it is morally unacceptable. They stated that this would discourage honest taxpayers from paying taxes on time, creating a moral hazard. Furthermore, the CPD believes that such a provision undermines the rule of law and goes against the spirit of good governance. Instead, tax dodgers must face accountability and be made to pay for their misdeeds.
Describing the budget as the traditional old budget of the new government and its new finance minister and state minister, Khondaker Golam Moazzem, research director at CPD, said: “Even in the midst of the financial crisis and macroeconomic instability, the government has not cut their operational expenditure significantly. Instead, they have raised taxes, reduced incentives, and cut social safety net programs (like the OMS project), which were intended for the masses.”
The CPD stated that overall, the social safety net budget as a percentage of the total budget and GDP decreased slightly from FY24 to FY25. Specifically, the social safety net budget, excluding pensions, decreased from 13% of the budget in FY24 to 12% in FY25. As a percentage of GDP, it decreased from 1.87% in FY24 to 1.78% in FY25. The allocation for the Open Market Sales (OMS) program decreased by 64%.
The think tank suggested that programs such as pensions for retired government employees and their families, savings certificate interest assistance, and agricultural subsidies should not be included in the budget for social safety net programs.
“Apart from this, taxes on fuel, services, and electricity will increase non-food inflation. Although duty exemption has been given on rice, oil, and flour, it will benefit importers and not the people. Our revenue is increasingly dependent on a few individuals and groups,” Khondaker Golam Moazzem said.
He also mentioned that the slab of the tax structure has been prepared consciously this time, which is a positive aspect of this budget.
