For decades, mis-invoicing and money laundering have been going on almost without any check. Business interests had to contend with political and economic instability and it seemed a safe bet to park a portion of profits or existing assets abroad. Under the prevailing circumstances then, such decisions were judicious from a certain perspective. It was illegal but the authorities were either unwilling or unable to check the outflow of billions every year. It suited the needs of business and those involved in various legitimate and illicit affairs to make this a regular activity.
Over time, the informal economy has practically eclipsed the formal one when it comes to finance. In the meantime, it has been easier to send assets abroad as the financial supply chain has evolved into a sophisticated operation. Asset managers have become adept at the art of moving liquid assets between or amongst foreign markets, the 'washing' of such assets has turned into an art form and global financial tracking is hugely frustrated by the scale and intensity of these illicit funds' movement.
This is the reality. In the Bangladesh context, policymakers have concluded that it is far easier to simply 'whiten' funds rather than take effective measures to try and put even a small dent in the outflow. Hence, it is understandable why there is talk about letting corporate taxpayers to declare undeclared income by paying a flat fee of 15 per cent so that some of these vast sums can re-enter the economy. The same facility is to be offered to individual taxpayers. But then these are not new proposals. Over the course of decades, such a facility has been proposed and approved by various governments in the past and failed to derive the benefits envisaged.
That a lot of the undisclosed money has not only flown into the coop but are now invested in fixed assets abroad appear to have escaped the notice of policymakers. Why would the holder of significant undisclosed money liquefy assets invested abroad and move the same back to Bangladesh, where s/he is not at all confident that there will be economic stability in the mid to long term? Data show that the revenue board (NBR) had earned Tk 20 billion at 10 per cent flat rate fee during Financial Year 2020-21. This time around, what is being hoped is that deal sweeteners will help sway the balance in favour of the economy.
What does that mean exactly? So, parties involved in laundering billions of dollars abroad are being given a second chance to make the pillage legal? One can understand how that makes sense from the government's point of view which must somehow increase private sector investment if it wishes the economy to keep growing. It is a "catch-22" situation. On the one hand, the revenue authorities are trying to increase tax-GDP ratio by bringing more people under the tax bracket and on the other, they are being encouraged to turn a blind eye to the big fish which have gotten away with what can be termed robbery of bank vaults.
As pointed out in a report published in this newspaper on Thursday last: "Corporate taxpayers would be able to show their undisclosed income without disclosing source of money by paying 15-percent tax at a flat rate, official sources said. Also, similar opportunity of repatriating the runaway money would be offered for individual taxpayers. Earlier, the government, on different occasions, had bent the financial law only for individual taxpayers to get their unaccounted-for money legalized." Indeed, the proposal has been made to put in a provision to that effect into the Income Tax Act 2023 that will allow for undisclosed income by corporate taxpayers and will be regularised through Document Verification System.
One can only hope that the adage "desperate times call for desperate measures" works, but without addressing the loopholes in the system that allow for the wholesale siphoning off cash from the financial system, there is doubt that the present measure will have the desired outcome. If this provision becomes law, it will only encourage plundering rather than providing people with the required incentives to pay taxes.
mansur.thefinancialexpress@gmail.com