For decades, Bangladeshi economists and tax experts have been demanding the scrapping of the provision for allowing black money --- money not shown in tax files or amassed remains untraceable or cannot be backed up by any legal documentation--- to be legalised by paying a flat fee. The reasons are obvious. If there is a legal provision that allow individuals or business entities to get away with bank default or other illicit transactions to amass wealth and then 'legalise' these sums of money by paying a fee to government, why would people in general be encouraged to pay taxes in the first place?
The malpractice has been allowed to fester for years under various governments and this time around, it was hoped that the present government would scrap the provision altogether. It has done so, but partially. The fact is that the real estate sector has witnessed double digit growth rates for a few decades and a lot of it has come from people who have both undisclosed money and / or 'legalised' fund that were 'whitened' using this process.
Policymakers are in a fix. It has come in on the promise of reform and righting the wrongs of the past. Hence the question arises how can such a provision still be applicable in case of purchasing apartment and land after its scrapping? "The provision has been offering a blanket facility for years to whiten money through investing in apartments and lands". This is a contradiction. There can be no half-hearted measure on the issue; either the provision stays or it is scrapped entirely. According to a senior research fellow of the Centre for Policy Dialogue (CPD), no authority can raise any question on the source of declared money and such money can be used to purchase apartments and land.
There are also issues with valuation of land --- one is the official rate and the other is the market rate. Purchase / sale of land are based on the market rate but registration is done on the official rate because the government-approved rate is much lower. Why no move was ever made to rectify this loophole? This particular loophole allowed for the whitening of black money in the case of purchasing fixed property where the only loser in the transaction is government exchequer to the undue benefit of purchaser and seller.
Any major shift in government registration rates upwards has a boomerang effect. This had happened when during the previous regime's time the land registration was quadrupled from 2.0 per cent to 8.0 per cent in one go. Even when the cost was 2.0 per cent, people used to show lower value of land but when it was raised four-fold, people made all sorts of deeds that showed that ownership of real estate had taken place but it was not registered on official record. The government ended up losing a very valuable source of income. The rate was later lowered to 4.0 per cent, which again was a wrong decision because the loopholes were left untouched.
So far as black money in the real estate sector is concerned, it should focus on plugging the loophole between market and official values of property. However, if the values are equated overnight, then there will be chaos, as had been the case with the previous attempt at raising the registration cost. The books need to be reconciled gradually. People must get used to the idea that more money will have to be paid to whiten concealed or ill-gotten wealth.
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