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Dhaka Tribune

WB slams tax provision to legalize black money

'Also, these policies have failed to earn a significant amount of revenue'

Update : 04 Apr 2024, 03:33 PM

The World Bank has criticized the government's policy for legalizing undisclosed wealth through investments, stating that such policies discouraged honest taxpayers and encouraged tax evaders to continue to flout the law.

Also, these policies have failed to earn a significant amount of revenue, said the Washington-based lender in its Bangladesh Development Update published on Tuesday.

At present, taxpayers show their undisclosed assets in their tax returns through investment in apartments, buildings and economic zones and high-tech parks.

Taxpayers have to pay a fixed amount of tax per square metre depending on the location of the flats and buildings, and 10% tax on the invested amount of black money in economic zones and high-tech parks.

As per the income tax law, any such investment will be considered as ones which have already gone through the process of their source being explained with field officials of the tax administration.

The government provided the opportunity to legalize black money without question in FY21.

The NBR got Tk2,064 crore in tax, the highest on record in a year, with 11,859 taxpayers showing their undeclared assets in their tax returns.

The tax authority discontinued the provision in the FY22 and imposed rules that taxpayers will have to pay a 25% tax on the undisclosed amount and a 5% penalty on the payable tax, but it got a lukewarm response.

The amount of tax collected by the country's National Board of Revenue (NBR) is significantly below its regional and aspirational peers.

The tax-to-GDP ratio declined from 9.1% in FY12 to 8.2% in FY23.

In its analysis on the reasons behind lower than potential revenue collection, the WB identified a number of issues.

These include exemptions, rebates and reduced rates, poor compliance, resistance against reform among revenue officials and businesses, manual taxation systems and a deficit of trust on the tax collection authorities.

Gaining the trust of honest taxpayers and those who are willing to pay their fair share could support revenue mobilization, said the WB.

There is a concern among taxpayers that disclosure of the actual assets in the tax returns can result in tax-related harassment, it said.

"Moreover, taxpayers get demoralized with recurring opportunities to legalize undisclosed money," said the WB, adding that the NBR and the Anti-Corruption Commission were not allowed to raise any questions on such declarations.

Illicit capital flows through various means have been depriving the government of revenues, said the multilateral lender.

Illicit capital flows to offshore accounts have been on the rise, it said, citing a State of the Tax Justice Report 2020 by Tax Justice Network.

The report estimated offshore financial wealth of Bangladeshis at 0.7% of the gross domestic product (GDP).

The tax and revenue losses, which include losses from corporate abuse and offshore tax evasion, are estimated at over $700 million or 2.2% of FY20 revenue, the WB said.

This is high compared to some of Bangladesh's peer countries, it added.

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