Money whitening scope to widen

Govt looks for fund to revive economy

The government may allow uses of untaxed or black money in all sectors to boost investment and create jobs as part of its efforts to pull the economy out of Covid-19 wreckage.

According to an official of the National Board of Revenue (NBR), the government high-ups were looking for ways that could bring the huge amount of untaxed money back to the economy as investments.

Black money is largely attributed to tax evasion and its direct impact is the loss of government revenue. For the last five years, black money-holders have been able to whiten their assets by investing in residential buildings for by paying a tax of 10 per cent on the amount invested, which for regular taxpayers is between 10 and 30 per cent.

But from the current fiscal year, economic zones and hi-tech parks were added to the list. Black money-holders do not face any question about the sources of their income if they invest in the sectors.

The scheme will be open till June 2024. However, the response has not been encouraging.

Zahid Hussain, a former lead economist of the World Bank in Dhaka, said "This is an instrument that has miserably failed to achieve its objectives of raising revenue for the government while inducing investments into productive sectors. It has been there in one form or other in every budget under all governments.

"We need to have a clear understanding of why it has not worked."

One reason, according to Zahid Hussain, is because it has become an opportunity for whitening undeclared income. There is no specific timeline within which the facility can be availed at concessional tax terms and beyond which severe penalties will be imposed if caught.

He asked, "Why would anyone declare their undeclared income or assets if they can always delay it without paying any penalty?"

A second reason, the economist said, is that the facility is offered for investment in a few handpicked sectors. If the black money-holders do not have any comparative advantage in those sectors, why will they risk their money?

He said, "The opportunity should be available for a limited period of time, say for three months. Within that period, the tax charged can be concessional. Beyond that, the penalties must be severe with credible threats of catching the black money-holders.

"The investors should be allowed to invest in all productive sectors as defined under the Industrial Policy."

The government badly needs revenue in the next fiscal year starting from July 1 with a view to boosting the economy amid drastic fall in economic activities and revenue generation owing to the nationwide shutdown put in place to stop the spread of the virus.

But the economy will take time to recover and revenue recovery will take even longer.

The pandemic has seriously impacted the country's economy. The extended closure of business establishments and offices as well as other social distancing measures resulted in simultaneous supply and demand shocks, with production, consumption, trade and investment all at a standstill.

The traditional growth engines of the country's economy like export-oriented industries, remittances and small and medium enterprises have all grounded to a halt. The pandemic cut 3.7 million jobs, according to the Asian Development Bank.

Revenue collection fell more than 55 per cent in April, revealing the massive hit the economy has taken from the pandemic. The pestilence may inflict a minimum revenue loss of 2 per cent of GDP.

With rising expenditure and declining revenues, additional government financing requirements in fiscal 2019-20 are estimated at $8.8 billion, or 14.2 percent of this fiscal year's budget.

About $2.9 billion of the deficits will be financed through external sources and $5.9 billion from the domestic market. There is no accurate data on how much black money Bangladesh has.

The Bangladesh Economic Association in May 2018 estimated that around Tk 5-7 lakh crore black money is used in the economy.

A finance ministry report prepared on the underground economy in 2012 implied that the amount of black money was around 45 percent to 85 percent of Bangladesh's gross domestic product (GDP).

The size of the shadow economy in Bangladesh was 27.60 percent of Bangladesh's GDP in 2015, down from 36.65 percent in 2003, according to a working paper of the International Monetary Fund in January 2018.