Now companies can also whiten black money
Under the proposed provision, black money can be legalised by depositing it in a bank or investing it anywhere, including the stock market, after paying a 15% tax, with no questions asked about its source
Good news for Bangladesh's corporate sector: now companies along with individuals can legalise their undisclosed income and assets at a flat 15% tax rate, significantly lower than the 27.5% for corporate and maximum 30% rate for individuals.
Previously, this was not possible due to the Data Verification System (DVS), which created legal complications in disclosing undisclosed income and assets. Also, companies will now be able to rectify errors they made in previous asset declarations. The inclusion of a tax incentive clause in the Income Tax Act now allows these corrections.
Professor Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue, criticises this nod for whitening black money, arguing it discourages honest taxpayers while rewarding tax evaders, thereby violating tax justice and eroding the tax-paying culture.
"It's not fair for taxpayers to pay a 30% tax on legal income while only being asked to pay 15% on illegal earnings. Similarly, companies holding onto hidden money for a long time shouldn't get away with a 15% tax rate. There should be stricter laws with penalties for earning illegally, including additional taxes," Mustafizur Rahman said.
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In defence of the decision, the finance minister cited the ongoing global economic crisis as a driving factor behind the move to legalise black money, aiming to stimulate economic activities and increase revenue collection to bolster the country's economy.
Under the proposed provision, black money can be legalised by depositing it in a bank or investing it anywhere, including the stock market, after paying a 15% tax, with no questions asked about its source.
This stands in contrast to the current Income Tax Act, where taxpayers can legalise black money by paying up to 25% tax plus a 10% penalty, with the risk of subsequent scrutiny by government agencies, dissuading many from utilising this option.
How often do black money holders use legalisation opportunities?
Bangladesh has a long history of offering amnesty for undisclosed income. Since gaining independence, there have been 21 chances for individuals and companies to declare black money by paying taxes ranging from 5% to 20%.
While these programs typically focus on domestic earnings, the fiscal year 2022-23 also allowed for the repatriation of funds illegally stashed abroad.
These programs usually come with a specific period for straightforward declarations, but there are no clear penalties for those who do not participate. Despite efforts in 1976 under Ziaur Rahman's regime to introduce punitive measures, they were not effective.
The first significant legalisation of black money occurred during the caretaker government in 2006-07.
Accompanying this opportunity, the government formed an anti-corruption task force and published a list of suspected corrupt individuals. In that year alone, about 32,000 taxpayers legalised Tk11,107 crore, mainly driven by fear.
In the fiscal year 2020-21, a record-breaking Tk20,600 crore was declared, with 11,859 individuals converting black money into white through various means, such as real estate investments or holding cash. Economists attribute this surge to limited international travel during the Covid-19 pandemic.
Despite these initiatives, Bangladesh's amnesty schemes have been less successful compared to other countries.
In June 2023, the government allowed individuals to bring back illegally stashed money from abroad by paying a 7% tax, but the National Board of Revenue (NBR) has no evidence that anyone took advantage of this offer.
Mohammad Abdul Majid, a former NBR chairman, noted that while many countries, including Bangladesh, have introduced ways to legalise black money, Bangladesh lacks a permanent arrangement for such programs.
This frequent offering of opportunities has diminished the effectiveness of Bangladesh's amnesty schemes compared to other nations.
Impact of black money legalisation on the economy
The ongoing debate on black money legalisation raises ethical and economic concerns. While certain sectors benefit from increased investment and cash flow, economists stress over the moral implications.
Industry leaders highlight the 2021 amnesty scheme, which spurred a Tk10,000 crore boost in the housing sector, surpassing typical levels.
Alamgir Shamsul Alamin Kajal, former Real Estate and Housing Association of Bangladesh president, credits this initiative for revitalising the housing industry, noting a surge of 5,000 additional flat sales compared to average years.
Apart from housing, substantial black money finds its way into the stock market and banks.
However, economist Mustafizur Rahman argues that these schemes have harmed the economy, fostering non-compliance among taxpayers who await such opportunities rather than paying taxes regularly.
He points out that this behaviour fuels corruption, with individuals resorting to bribery and illegal activities in anticipation of future amnesty.
The economist raises constitutional concerns, citing Article 20(2) of the Constitution of Bangladesh, which aims to prevent people from enjoying unearned income. According to the country's Income Tax Act, undisclosed income is considered unearned income.
