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White paper on black money

Asjadul Kibria | Friday, 12 July 2019


Black money is a reality in Bangladesh as in many other countries. Estimating the amount of black money in an economy is difficult. However, researchers have attempted to do the exercise. The core idea behind the exercise is to provide the possible extent and consequence of black economy in a country. Different researches have produced different estimation of black money which is also not unlikely.
The first thing required to estimate the amount of black money is its definition. Generally, tax-evaded income is termed black money. It is tax-evaded because of its illegal nature in general. Income from smuggling, drug dealing or any other criminal activities is black. Besides this, income from legal sources that evades tax also turns black.
Some researchers argued that only illegal activities should be taken into consideration to estimate the amount of black money. Others argued that all types of tax-evaded incomes, both legal and illegal, needed to be taken into account.
A number of terminologies are also used interchangeably to describe black economy. These include: shady economy, underground economy, unreported economy, unrecorded economy, shadow economy, parallel economy, informal economy, grey economy etc. All these basically indicate the economic activities not officially recorded and so skip tax net and regulatory measures.
Black economy is also considered cash economy as it is liquid and fast. Cash transaction is easy to keep it unrecorded and also increases the velocity of money. The spread of digital and electronic transaction, however, gradually makes the cash transaction costlier in many countries. That's why, it is believed that lesser cash, if not cash-less, system is a vital instrument to curb black money.
One interesting feature of black economy is that it actually does everything that formal or official economy does, except the illegal activities, and sometime even more efficiently. But it is exploitive in nature.
Governments want to know the size of black economy mainly to gauge the amount of revenue loss due to tax evasion. Economists and researchers come up with some unorthodox methods to estimate black economy. For instance, one way is measuring the amount of cash in circulation in a country in a given period of time and then deducting the amount of cash required for open or legitimate transactions. Usually, central bank provides data on currency in circulation and also currency with public or currency outside banks. Thus it is not difficult to get data on valid amount of cash in an economy. the tricky thing is determining the required amount of cash for all legitimate transactions.
In Bangladesh, late Dr Sadrel Reza, former Director General of Bangladesh Institute of Development Studies (BIDS) estimated that the size of black economy in Bangladesh was one-third of the formal economy. He did the estimation in late eighties with reference to fiscal year 1985-86 (FY86). Dr Asaduzzaman, another researcher of BIDS, estimated that size of shady economy in Bangladesh stood at 21.40 per cent of the country's GDP in FY90.
Sheikh Touhidul Haque, in his paper in 2011, showed that the size of the underground economy in Bangladesh was only 7 per cent of nominal GDP in 1973 which increased to 62.75 per cent of GDP in 2010. In a working paper of the International Monetary Fund (IMF), Dr Leandro Medina and Dr Friedrich Schneider estimated that the size of shadow economy in Bangladesh came down to 27.60 per cent of the country's GDP in 2015 which was 36.65 per cent in 2003. IMF paper is the latest estimation of black money so far.
In 2013, AMA Muhith, the then finance minister at his post-budget press briefing mentioned that the amount of undisclosed money in the economy is something between 41 and 82 per cent of the country's GDP. Probably, it was the only formal government statement on black money in the country. Mr Muhith made the statement on the basis of an inside analysis of the finance ministry.
The incumbent finance minister, in his formal speech while presenting the national budget for FY20, didn't say anything about the prevalence of black money in the country. There was also no clear message to contain the shadow economic activities. Instead he extended legal scope to whiten the black money. As the government believes that such money whitening scheme will bring black money into formal or mainstream economy, it may consider publishing a white paper on the black money.
A white paper is basically an information document to provide simple explanation of a complex issue. By issuing a white paper, the government not only describes the different dimension of any complex issue, but also suggests some steps to deal with the issue. At the same time, it seeks public opinion about the matter in general. By publishing a white paper, the government may check public opinion on any controversial policy issues which also helps the government to assess its possible impact. So, it is also a document of transparency.
Indian government in 2012 unveiled a 'White Paper on Black Money' to present the 'different facets of black money and its complex relationship with policy and administrative regime' in the country. Pranab Mukherjee was the finance minister at that time. In the foreward of the white paper, he wrote: "There is no doubt that manifestation of black money in social, economic and political spaces of our lives has a debilitating effect on the institutions of governance and conduct of public policy in the country. Governance failure and corruption in the system affect the poor disproportionately. The success of an inclusive development strategy critically depends on the capacity of our society to root out the evil of corruption and black money from its very foundations."
Preparing a similar kind of white paper on black money in Bangladesh is not an impossible task. The finance ministry with the help of Bangladesh Bank, National Board of Revenue (NBR) and other relevant bodies may prepare and publish the white paper. Through the white paper, the government may easily describe: what black money is, what are the factors for generating black money, what is the amount of black money in the country and how the amount is estimated. It may also include the consequence of black money in the society and how the government is trying to curb generation of black money. The government's argument in favour of money whitening schemes may also be explained in detail. Through the white paper the government may also mention how it is joining the international initiatives to fight against the black money.
As the economy of Bangladesh is growing rapidly, scope of the generation of more black money is there mainly due to corruption and irregularities in different areas. In his budget speech, the finance minister asserted: "Our government has adopted a policy of 'zero tolerance' against corruption." He also acknowledged that by preventing corruption, it would be possible to accelerate the current pace of development. The white paper on black money will be an important step to accelerate the fight against corruption.

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