The government has finally decided to keep the provision for allowing whitening of undisclosed money although it was left out of the proposed budget.
Finance Bill 2014, which was passed in the parliament yesterday, has retained the provision for legalising undisclosed money in productive and income-generating sectors through payment of 10% penalty and the regular 25% tax.
The whitened money can also be used for purchasing land and residential apartments during FY2014-15.
Finance Minister AMA Muhith has said multiple times before and after announcing the proposed budget earlier this month that the provision is no good as it never lived up to the revenue expectations.
Undisclosed money stands for the money, wealth or property that individuals and organisations have not included in their tax returns. The idea is that the government will not grill anyone if they took advantage of the provision.
However, as economists understand, the same does not apply to black money, which stands for money or wealth accumulated through unlawful or criminal activities.
According to the budgetary provision, black money can be whitened in the same fashion, but that does not guarantee indemnity from law.
During the passage of the Finance Bill 2014 in parliament yesterday, Muhith, who was strongly against it only a few days ago, said the provision was necessary for maintaining a balance in the taxation system.
According to a 2011 study endorsed by the Finance Ministry, black money accounted for 62.75% of the total GDP of 2009. In 1973, black money accounted for only 7% of the then GDP.
Mostafizur Rahman, executive director of the Centre for Policy Dialogue, told the Dhaka Tribune: “The GDP may have accommodated a major portion of the said amount of black money. Only that generated from activities such as illegal arms trade, trafficking and smuggling, might have been left out.”
Economists have often hinted at a parallel economy in Bangladesh which is nearly equal in size to the mainstream economy. The income generated from that economy never gets registered in the official mechanisms, consistent with the concept of black money.
“India have in the past introduced the provision on a one-time basis and many people whitened their illegal money, generating huge revenue. But the Indian government was strict to warn people that any illegal money tapped after the expiry of the provision would be dealt with severe consequences,” Mostafizur said.
“The same provision has been there in Bangladesh for years but has failed to translate into any significant revenue... However, because of lax enforcement, instead of being injected into the economy, the illegal money is siphoned abroad in bulk,” he added.
Former NBR chairman Mohammad Abdul Majid told the Dhaka Tribune that the provision must be unconditional.
“With the provision, the government has to ensure... that businesses will not face any hassle after legalizing their undisclosed incomes. In addition, the government has to maintain a fixed deadline or time frame for attracting undisclosed money to boost investments,” he added.
According to the aforementioned study by the Finance Ministry and titled “Underground Economy of Bangladesh: An Econometric Analysis,” there was untapped money worth Tk5,64,543 crore in the economy in 2011, which was 62.75% of the Tk8,99,670 crore GDP figure.
Statistics compiled by the National Board of Revenue (NBR) showed that only Tk9,683 crore had been whitened from 1971 to 2009.
The report also said a large chunk of black money is siphoned abroad and only a little went into fixed deposits, while the black money holders spent the rest on maintaining a high standard of living.
According to the Global Financial Integrity Report 2013, during 2009-2013, more than Tk2,098 crore was whitened in Bangladesh, against which the revenue authority received only Tk279 crore in taxes.
The report added that $2,805m was sent abroad from Bangladesh through illicit flight in 2011.
Abdus Salam Murshedy, president of the Exporters’ Association of Bangladesh, said: “We all know that bribery and corruption are the realities in Bangladesh. There will always be black money as long as these two are there. If the conditions are strict for disclosing black money, then the money will slip underground and will not benefit the economy.”
Among the major updates in the Finance Bill 2014, it incorporated a 1% surcharge, withdrew advanced income tax and reduced customs duty on mobile handset import. The existing Tk10,000 ceiling for tax-free dividend income, which was set at Tk15,000 in the proposed budget, was finalised at Tk20,000 in the bill passed yesterday.