The Bangladesh anti-graft watchdog has called upon the National Board of Revenue (NBR) to launch campaigns to popularise the relevant income tax provisions for legalising undisclosed money and bring it into formal economy.
Applauding the existing provision, the Anti Corruption Commission (ACC) has said the revenue authorities are not getting benefits by offering the provision due to lack of awareness of the provision in the income tax law.
“Many people cannot show their legally earned money in the income tax returns due to lack of awareness and thus undisclosed money is created,” ACC Secretary Abu Md Mustafa Kamal said in a letter to NBR Chairman Md Nojibur Rahman in May.
Considering the situation, the ACC requested the revenue authority to launch campaigns to make people aware about the provision and bring undisclosed money to the economy.
According to the Income Tax Ordinance 1984, untaxed money can be invested in some areas including the real estate sector and other income-generating sectors by paying a certain amount of penalty, along with regular taxes.
[caption id="attachment_3638" align="alignright" width="330"] Graph shows the trend in reinvestment of undisclosed income into productive sectors over the years, according to NBR data.
According to section 19B of the income tax ordinance, any taxpayer can whiten their undisclosed money with the purchase of residential buildings and flats after paying a tax with rates based on locations.
On the other hand, section 19E of the same ordinance says such money can be invested in income-generating sectors such as “industrial enterprises, balancing, modernisation, renovation and extension of an existing industry, building, apartment, land, securities listed with stock exchanges and any trade, commercial and industrial venture engaged in production of goods and services” through a payment of 10% penalty along with regular tax at the rate of 30%.
Finance Minister AMA Muhith, in his post-budget briefing on June 3, said the provision to legalise undisclosed money by paying a certain amount of fine would continue as long as the current government is in power.
Economists, anti-graft campaigners, taxpayers and different stakeholders have always been vocal against the provision.
In his letter, the ACC secretary also said the provision was playing an important role in preventing corruption as it can help bring untaxed money into the formal economy.
Undisclosed money – commonly called black money – stands for the money, wealth or property that individuals and organisations have not included in their tax returns.
The move will encourage corruption. It will act as a licence to generate black money
Many stakeholders and watchdogs say this is black money, usually generated by illegal means.
Transparency International Bangladesh (TIB) Executive Director Iftekharuzzaman told the Dhaka Tribune that they were astonished to see such a move from the ACC that contradicts with its mandate and also with the section 20 (2) of the constitution.
“The move will encourage corruption. It will act as a licence to generate black money,” he said, adding that the measure will dishonour honest taxpayers and reward people who do not declare their real earnings.
He also suggested that the government find other ways to attract investment and pointed out that the whitening provision had never increased investment significantly despite being in place for years.
NBR officials said that the facility had brought no positive impact on the economy as people who owned undisclosed income mostly spent it buying assets abroad or luxury goods, or siphoned off the money abroad to be deposited with foreign banks.
In fiscal year 2014-15, only 222 individuals legalised Tk676.47 crore through investment in different sectors while the government received only Tk27.54 crore as income tax, NBR data shows.
Former ACC chairman Ghulam Rahman said such provisions can only be fair if people legalise the money they have failed to show in their income tax returns due to information gap or mistake.
“But no money generated by dishonest means should be allowed to be legalised,” he said.
The government should not spare these people from the related provisions of other act or laws, no matter what is said in the income tax act, added Rahman.
When contacted, ACC Secretary Abu Md Mustafa Kamal declined to comment on the matter over phone.