After a four-year hiatus, the government has once again decided to provide a scope to legalize black money. Under this scheme, individuals can "whiten" their black money by paying a flat 15% tax, without any scrutiny from government agencies regarding the source of the funds. This move, amidst efforts to combat money laundering and tax evasion, has been included in the budget proposal.
Some economists also say, It will not only discourage the taxpayers, who are giving 30% tax for their hard-earned money but also encourage black money in the name of increasing tax revenue. Stopping black money should be the main goal for the government.
Economists have criticized the government's decision. Anwar-Ul-Alam Chowdhury (Parvez), president of the Bangladesh Chamber of Industries (BCI), remarked that while the option to whiten black money existed previously, the government didn't reap significant benefits from it. He suggested that instead of a fixed tax, it would have been more beneficial if the option had been provided in the form of investments in certain sectors, which could have positively impacted the overall economy.
Ahsan H Mansur, executive director of the Policy Research Institute, expressed concerns that such opportunities demoralize law-abiding taxpayers. He argued that it's unfair for taxpayers who diligently fulfill their tax obligations to see those who evade taxes or bring in illicit funds only required to pay a 15% tax. He highlighted that current tax rates for individuals like himself range from 30% to 35%, and thus, the 15% rate for whitening black money should not be granted.
It's worth noting that the National Board of Revenue (NBR) plans to raise the maximum tax rate for individual taxpayers from 25% to 30% in the next fiscal year.
It means that if the opportunity is offered, black money holders could potentially legalize their undeclared money by paying only half the regular tax rate.
Regarding the proposal of whitening black money Ashraf Ahmed, president of the DCCI said that the proposal of whitening black money with a tax of 15% in the proposed budget cannot be applauded. It is possible only when legitimate money is treated as black money due to procedural reasons.
“But it is undesirable to provide an opportunity to ‘whiten’ the laundered black money which earned illegally,” he added suggesting that in that case, the matters mentioned in clauses (a) and (a) of sub-section (d) of section (3) of Part-II of Income Tax Act shall be implemented.”
Legalizing undeclared money never stopped
The legalization of undeclared money has been an ongoing practice. 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 utilized in property purchases, subject to a location-based tax. However, government agencies retain the authority to investigate the source of such funds later on. Despite these provisions, bringing undisclosed money into the mainstream economy has not been very successful.
However, there are incentives for investing undisclosed money in economic zones and high-tech parks, with a reduced tax rate of only 10%. Investors in this category also benefit from amnesty.
What happened earlier
In fiscal year 2020-21, the government allowed black money to be legalized at a tax rate of 10%. According to sources within the National Board of Revenue (NBR), a record number of 11,839 people legalized approximately Tk20,500 crore in FY21, resulting in Tk2,064 crore in revenue for the NBR. Of this amount, Tk16,830 crore in cash, held either in banks or as physical currency, was legalized by 7,055 individuals who had previously evaded taxes. The remaining funds were invested in real estate, flats, or the stock market.
In FY22, individuals were permitted to repatriate their undeclared funds held abroad at a tax rate of 7%.
