Black money in Bangladesh

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Muhammad Abdul Baset­The issue of black money has been whipping up strong debates frequently in recent years. This is quite natural, given the fact that the size of the black money is huge and the holders of the same do dominate politics and business. Definition of Black Money: The term 'black money' is illegal earnings that mean money earned unofficially or illegally. 'Black money' is the income, as from illegal activities that are not reported to the government for tax purposes. So black money is the money which is not involved in paying tax imposed by the government. The biggest corruption sector in Third World developing countries is money laundering derived from cheating, smuggling, trafficking, and innumerable methods of graft into proceeds traditionally called black money or informal trade. So we can say that the money which has no legal source of income, which are not specified and not disclosed to the government and not involved in paying tax, is known as black money. Size of Black Money in Bangladesh: In a post-budget press conference the finance minister said the amount of black money is anywhere between 45 per cent and 81 per cent of the gross domestic product (GDP) in Bangladesh. The finance ministry official said the minister quoted the amount from the analysis report. The report said about 45 per cent to 81 per cent of the country's economy was underground in 2010. It said when a big portion of the economy remains outside formal economy, it creates 'asset bubble' and it may have a negative impact on macro-economy. New study by the finance ministry finding that undeclared income or "black money" could account for up to 80 per cent of gross domestic product -- some $110 billion at present. We do not know whether anyone carried out an extensive study to find out the actual quantity of black money we have in the country, as well as the amount of black money invested in the productive sector. There are only a few estimates about the amount of black money, which vary widely. Given the power of the black money holders to create pressure on the government, the amount of such money surely has become enormous over the years, and could be counted in billions. Sources of Black Money: There are many sources of black money. According to banking sources and economists, smuggling, bribery, corruption and socio-political crimes, manipulations in import etc., are the major sources for black money generation. Black money is also associated with tax evasion, drug trafficking, terrorism, extortion, black-marketing, market manipulation, money laundering, over and under-invoicing or other organized criminal activity. Some portions of it are transferred abroad and some kept as fixed deposits in the banks. In fact many of the elements involved in making black money are very much part of the government itself. "Many in the cabinet, parliament and bureaucracy are black money owners and are directly involved in making black money," explained by Anu Muhammad, a renowned economist and professor of Economics of Jahangirnagar University. He has worked out some 22 sources of black money. Some of them are stated below: l A big chunk of black money is produced through corruption in development projects and those of international contracts of oil and gas where the dealings take place between the government and different multi-national companies. l Privatisation of state owned organisations and system loss are two other prominent sectors where a huge amount of black money is being generated. All sorts of irregularities by different government service providers like Power Development Board (PDB), Water and Sewerage Authority (WASA) etc., which we conveniently term as 'system losses' generate millions of taka as of black money. The other means is privatisation; black money is also produced when state property is sold in the name of privatisation at an extremely low price and to chosen buyers. l Another significant source of black money is 'informal business' (the hawkers, vendors, makeshift business shops, road-side restaurants, which are not included in the formal business). These informal businessmen have to pay a sizeable amount as 'chanda' (extortion) or informal taxes, which are also black money. Policy and Whitened Amount: The provision of whitening black money was first introduced in the national budget for the fiscal year (FY) 1975-76 to bring some Tk 700 billion (70,000 crore) of black money into the formal economy. Only a few black money holders took the opportunity provided by the martial law government in 1976 for whitening their money, and Tk 700 million (70 crore) was whitened that year. National Board of Revenue (NBR) sources said the highest amount of money whitened in FY 2007-08, even after paying taxes and fines, in the history of Bangladesh prompted mainly by the caretaker government's anti-corruption drives. The opportunities for whitening black money were given on eleven occasions during the last four decades in our country, only few people took the opportunities. Bangladesh government got only Tk 14 billion (1400 crore) as tax from whitening the black money. It is said that only Tk 180 billion (18000 crore) black money was whitened during the past four decades. Dangers of Black Money: Black money has manifested itself in many bizarre forms and dimension in our country. Obviously, the economic affairs of the black money holders, including criminalisation of politics, are now proceeding with a well-orchestrated plan. This is adequately supported by the persons in the corridor of power. One may see that a parallel economy run by the black money holders will be strong enough to challenge the formal economy in near future as it now estimated to be very close to the national economy. Black money responsible for running a parallel economy has been causing havoc not only in the economic field but also in every sphere of our lives. "Black money makes no positive contribution to the economy," notes Dr Bakht. "It plays no positive role in employment generation, production or any other sector. On the contrary, it has a severe impact on inflation that affects the poor. The unlimited expenditure of black money owners also leads to higher import and increase in commodity prices." Besides, black money making is aggravating the inflation as well as the poor revenue earning of the government and thus affecting the overall growth of the nation. Remedies of Black Money: NBR and Bangladesh Bank (BB) officials say their organizations have taken multiple steps in their lines to seal the sources of black money. But officials of both the organisations admit that the only real way to stop black money generation is a strong political will. To cut black money corruption, some elementary yet major remedies must emerge: l Stop "black money whitening" immediately, with amended tax law. l Jail the criminals who deal with black money, instead of legalizing them. l Make simple changes in banking to capture money-laundering. It requires minuscule adjustments of the national system to make substantial reductions in corruption. The key is appropriate control of financial systems. Only small amount of money had been whitened by the holders of black money during the last four decades. The amount is just a peanut compared to the huge size of the black money. Such an outcome is natural, especially in an environment where one can easily get away with, even after committing serious financial crimes. The provision to whiten black money not only discriminated against the honest tax payers but also legitimised the accumulation of black money, which should be otherwise considered as a criminal act. Most people would also agree with them that a substantial part of the black money is taken out of the country. The holders of black money is not under any compulsion to legalize their funds and invest the same in productive activities since there is little risk in keeping the black money black. The black money whitening facility is not the solution to the problem that has created a culture of plunder in the country. The sources of black money are well known to the people in power. So, it is imperative for the government to strike at the sources of black money to check its unabated growth. For a country that was ranked as one of the most corrupt countries in the world for several years, there is no other option but to make the Anti-Corruption Commission (ACC) really a functional one to check the unabated growth of black money. Accumulation of black money must be brought under control, knowing well that it can not be eliminated totally. The government must take tough steps to stop tend manipulation, over- and under-invoicing in import, and bribery and corruption in the administration, besides improving the governance, so that the ways to make black money are closed. It is now for the government as well as for the opposition leaders to comprehend the reality, which is that the nexus between the politics and black money is the prime factor in criminalisation of the society. The situation calls for a determined drive to provide substantial relief to the common people from the tyranny of black money. .................................................................. Muhammad Abdul Baset is Lecturer, Department of Management Studies, Jahangirnagar University. Courtesy: 'Bangladesh at 40: Changes and Challenges,' a publication of Faculty of Business Studies, Jahangirnagar University (JU) to mark its holding of a three-day seminar on the afore-mentioned theme from December 09 to December 11, 2011 at the JU at Savar. The Financial Express is the media partner of the event