Black money indemnity in housing, tax holidays for 20 sectors may return

Highlights:

• Government considering black money investment amnesty for real estate sector
• Proposed scheme may provide full protection from source investigations
• Economists criticize plan as corrupt, discriminatory, and constitutionally contradictory
• Previous scheme legalized Tk20,500 crore during 2020-21 fiscal year
• Government also considering restoring tax holidays for multiple industries
• Officials say incentives could boost investment, production, and employment growth

The government is actively considering reintroducing a controversial amnesty allowing untaxed money to be invested in real estate with full indemnity in the upcoming national budget.

Finance ministry officials familiar with the budget discussions told The Business Standard that the government thinks the proposed facility, which would protect investors from scrutiny regarding the source of funds, could revive economic activity and stimulate investment.

An official, who spoke on condition of anonymity, said, "Initially, the real estate sector is being considered for this facility." However, he said the format of the scheme and the applicable tax rate have not yet been finalised.

Infograph: TBS

The facility, previously introduced during the Awami League government, was later scrapped by the interim administration following strong criticism from economists and civil society groups, who described the measure as unethical and discriminatory.

The government is also considering the reintroduction of tax exemptions similar to tax holidays for new investments in over 20 sectors, including pharmaceuticals, Active Pharmaceutical Ingredients (API), agriculture, agricultural machinery and manufacturing industries. The incentives had been withdrawn in the previous budget.

Officials said the proposed tax incentives are aimed at encouraging production-oriented and employment-generating investment to help restore momentum in the economy.

Debating the indemnity clause

NBR officials said provisions introduced under the Awami League government, which barred any authority from questioning the source of such funds, could also be reinstated.

"If agencies retain the authority to question the source of funds, people will not be interested in investing," an official said.

A separate official said the facility could be introduced with full indemnity against disclosing source of money.

"If indemnity is not provided, investors may still hesitate because of future risks, even if tax rates are reduced," he explained.

Business leaders from the real estate sector called for the reinstatement of the black money whitening facility during recent budget discussions.

However, NBR Chairman Abdur Rahman Khan had previously expressed reluctance over restoring the scheme during several budget-related discussions over the past two months.

According to officials, no decision has yet been made regarding the applicable tax rate if the facility is reintroduced. The matter remains under review by the NBR.

Critics argue that reinstating the scheme would contradict the government's anti-corruption commitments.

Iftekharuzzaman, executive director of Transparency International Bangladesh, said reintroducing the facility would be "self-destructive" for a government elected on promises of combating corruption.

"This government committed itself strongly against corruption in its election manifesto. Therefore, it should not take any decision to legalise black money," he said.

Describing the facility as supportive of corruption, discriminatory and contradictory to the constitution, he questioned how the government would justify such a move to the public.

History of black money whitening schemes

Successive governments in Bangladesh have offered opportunities to legalise undisclosed money since the country's independence. However, the Awami League government significantly expanded the scheme in the 2020-21 fiscal year by allowing legalisation of undisclosed money at a flat 10% tax rate alongside indemnity protection.

At the time, regular taxpayers were subject to tax rates of up to 30%, while holders of undisclosed money were allowed to legalise assets by paying only 10% tax, triggering widespread criticism.

During that fiscal year, 11,839 individuals legalised approximately Tk20,500 crore, the highest amount regularised in a single year in the country's history. The NBR collected Tk2,064 crore in revenue from those investments.

Of the total amount, Tk16,830 crore in cash held in banks or as cash under temporary NBR provisions was legalised by 7,055 holders of undisclosed money. The remainder was invested in land, apartments and the stock market.

The facility was reintroduced in FY25 at a 15% tax rate. Following the fall of the Awami League government, however, the interim administration gradually withdrew the facility, particularly the indemnity provision.

At present, individuals and companies can still invest undisclosed money legally, but they must pay the applicable tax rate of up to 30% along with a 10% penalty on the payable tax amount.

Under indemnity provisions, no government agency outside the tax authority, including the Anti-Corruption Commission, can question the source of the declared funds.

Sectors likely to receive tax concessions

Approximately 32 sectors previously benefited from a tax holiday scheme, which was abolished last year. Moving forward, new investments in select fields – including active pharmaceutical ingredients and radiopharmaceuticals; agricultural machinery and automobiles; barrier contraceptives and rubber latex; as well as foundational electronic components such as resistors, capacitors, transistors, integrated circuits, and multilayer PCB manufacturing – may be eligible for reduced tax rates for a specified duration, according to officials.

The list may also extend to bicycles and their spare parts; bio-fertilisers; biotechnology-based agricultural products; boilers; compressors and their components; computer hardware; home appliances; pesticides and insecticides; leather and leather goods; locally produced fruit and vegetable processing; petrochemicals; pharmaceuticals; plastic recycling; textile machinery; toy manufacturing; tyre manufacturing; electrical transformers; and the manufacturing of automobile parts and components.

Additionally, the scope of these concessions may cover automation and robotics design, manufacturing, and their associated parts and components; artificial intelligence-based system design and manufacturing; as well as the manufacturing of nanotechnology-based products.

However, the exact duration of these tax benefits and the specific concessionary rates remain unconfirmed.

Previously, the sectors in question qualified for a tax holiday framework under which they enjoyed a 90% tax exemption on applicable income tax during the first two years of commercial production – meaning they were required to pay just 10% of their total tax liability. This was followed by a 75% exemption in the third and fourth years, a 50% exemption from the fifth to the seventh year, and a 25% exemption from the eighth to the tenth year.

Anwar-Ul Alam Chowdhury Parvez, president of Bangladesh Chamber of Industries, said, "Investment is essential to inject momentum into the economy. If the government extends tax concessions to sectors capable of generating employment and contributing to the economy, it will generate positive macroeconomic results."

However, he stressed that whatever incentives are granted must be long-term and predictable.

Snehasish Barua, an income tax expert and managing director of SMAC Advisory Limited, said, "It would be more rational to grant incentives based on performance to sectors that have the potential to contribute significantly to the economy."

Speaking on condition of anonymity, another economist noted that abruptly abolishing the facility last year, only to reinstate it now, could fail to inspire investor confidence. "Decisions regarding the inclusion or exclusion of any sector should be firmly rooted in rigorous research – an approach that remains lacking in our country," he said.