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Knowing true colour of the money

Shamsul Huq Zahid | June 24, 2019 00:00:00

The debate over facility extended to whiten 'black money' or legalise 'undisclosed income' returns on the occasion of announcement of most budgets.

Though the facility was first offered in the mid-seventies, it remained more or less a recurrent event during the past three and a half decades. Despite strong opposition from most economists and relevant others, the government continued to include the provision in the budget documents and faced criticism from different quarters.

But is it worth swallowing all those criticism? Not really.

Barring the year 2007-08 when the country was under a military-led caretaker government rule, the amount of money the government received against such a facility, had always been a paltry one. During the 2007-08, the amount whitened was substantial, primarily because of fear factor.

Yet successive governments, coming under pressure from various interest groups, have been offering the facility in the budget of almost every financial year. The actual output of the government's magnanimity, however, with regard to tainted money has been highly unsatisfactory.

A case in point is the facility now in place for investing black money in the real estate sector. The taxmen do not ask any question about the source of fund if it is invested in the real estate sector. The relevant investors or buyers of flats and apartments are required to pay tax at certain rates. The objective was to bring in black money in the mainstream economy in general and provide an impetus to the real estate sector in particular. The sector has been in a bad patch for a long time.

The finance minister in his budget speech said the investment of undisclosed fund in the real estate sector has been unsatisfactory since the tax rates offered under the facility are high. Now he has proposed a cut in tax rates.

The budget for the next fiscal year also promises not to ask any question about the source of fund if it is invested in economic zones and high-tech parks by paying only 10 per cent tax.

Is it fair on the part of the government to allow investment of 'black money' without raising any question?

The government argues that the funds it is allowing for investment are not tainted and they are legally earned undisclosed money.

But, how do you know the colour of the money when you are not asking any question about its source?

So, there is every possibility that the funds that the government wants to attract without asking any question and offering tax break are black in their hue.

According to the Investopedia, black money is money earned through any illegal activity in violation of country regulations and its proceeds are usually received in cash from underground economic activity and, as such, are not taxed.

The government should not allow money generated through illegal means to come into the mainstream economy, that too, by paying a very nominal tax. Without asking the investors concerned about the sources, the government cannot be certain about the quality of the money.

Business leaders, in the meanwhile, have made their position on the issue clear. A number of them have said they do favour allowing legally earned undisclosed income, not black money, for investment in the productive sectors. The new chief of the country's apex trade body, the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), is also among those business leaders.

Moreover, there is something called fair play that any government worth its name can hardly ignore. If black money holders are given the opportunity to invest in economic zones and high-tech perks by paying tax at a rate of only 10 per cent, then why would people invest fund against which they have paid tax at rates as high as 30 per cent?

There is no denying that a number of countries world over do offer opportunity to whiten black money from time to time. But the rates they fix are usually high and do not anyway offend honest taxpayers.

It remains a mystery as to why the government takes recourse to black money whitening scheme when the same instead of ensuring any tangible benefit exposes it to unnecessary criticism from various quarters.

Yet criticism could hardly deter the policymakers from offering the black money whitening facility from time to time. But the government should be aware of the fact that this kind of unfair tax measure remains a strong disincentive for honest taxpayers. In a way, honest taxpayers are rather encouraged to become tax defaulters.

The measure in question is not consistent with the effort on the part of the taxmen to generate more revenue and bring in greater number of people under the tax net.

The government could have faced its critics well had the outcome of such tax concessions been anything notable. Barring the beneficiaries, it is hard to find people supporting the move. It is also an ethical issue that the government should not ignore.

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