It is indeed a regular practice within the framework of Bangladesh's National Budget to include provisions for legalising black money as white money. Recently, the World Bank has criticised the tax provision for legalising black money. It is necessary to define what constitutes black money. In short, undisclosed wealth in the Income Tax Return is referred to as black money. However, there are gray areas regarding the definition, scope, and amount of black money.
Generally, there are two types of undisclosed income. One is legally earned income but undisclosed for various reasons. For instance, some professionals and businesses earn a significant amount of money through legal activities but fail to declare some portions of that income, either intentionally or unintentionally. The other type is illegally earned income. Individuals who earn through illegal and criminal activities such as smuggling and rent-seeking have no opportunity to declare such incomes, as there is no legal provision for doing so.
Typically, the provision is implemented with the aim of boosting revenue. However, the government ultimately cannot generate a significant amount of revenue because taxpayers reveal their undisclosed assets in their tax returns through investments in apartments, buildings (by paying tax per square meter), economic zones, and high-tech parks (by paying 10 per cent tax on the invested amount of black money). According to Bangladesh Income Tax Law, any such investment "will be considered as ones which have already gone through the process of their source being explained" with field officials of the tax administration.
In the Financial Year 2020-21, the government provided the opportunity to legalise black money without any questions, and the National Board of Revenue (NBR) collected Tk 20.64 billion in tax, the highest record in a year, with 11,859 persons whitening black money. Now the question arises: what are the consequences of this policy for honest taxpayers? Honest taxpayers are demotivated, while tax evaders are encouraged to continue their misdeeds. As a result, honest taxpayers become frustrated when subjected to additional investigations, while tax evaders escape scrutiny.
The Income Tax Authority discontinued the provision in the FY 2021-22, irrespective of the five-year scheme which was supposed to end on 30th June 2024, and imposed rules that taxpayers will have to pay a 25 per cent tax on the undisclosed amount and a 5.0 per cent penalty on the payable tax, but the response was not as expected. People believe that the money whitening scheme is unethical as it encourages black money and discourages honest taxpayers. It also compromises morality in society.
Mamun Ali Khan ACMA
CEO, M.A. Khan & Co.
Dhaka
mamunalikhan.cma@gmail.com