Govt to allow money-whitening for 3 years, but no penal tax

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Doulot Akter Mala
The government is set to adopt a three-year-long controversial 'money whitening' offer in the budget, allowing investment of undisclosed money in selective sectors with the payment of 10 per cent tax, officials said Saturday.
The opportunity, which has in the past drew sharp criticism from civil society groups and economists, will come into effect from July 1 and will remain valid until the end of 2012 fiscal year.
Officials told the FE that the finance minister AMA Muhith has agreed to keep the controversial policy for share market, real estate and some other 'investment intensive' sectors in an effort to boost spending and infuse dynamism in the economy.
The offer will be the 'main surprise' for the taxpayers when Muhith will make his maiden budget speech for the Awami League government on June 11, they said.
Despite all the pleadings by chamber leaders and advocacy groups, the government is set to keep the individual tax exemption ceiling and the corporate tax rate unchanged, but would announce a special reduced tax rate to woo investment.
In the proposed money-whitening offer, there will be no provision for penal tax like the previous two years. People with undisclosed income will have to pay only a flat tax of 10 per cent on the amount of their investment to legalise their money.
The move comes after the National Board of Revenue (NBR) in the past two financial years received extremely poor response on its offer to legalise undisclosed income by paying penal taxes in addition to the normal taxes.
The Board earned only Tk 11.00 billion in taxes from the offer --- which is a pittance compared to the amount of undisclosed money now being held in private accounts in the country.
A senior government official said the proposed new measure would simplify 'money whitening scheme' and encourage tens of thousands of people to channelise their hidden income into the real economy.
"We have seen in the past two years that penal taxes did not work. The proposed new measure would greatly make things easier for the people who want to whiten their undisclosed income," the official.
"We believe the new opportunity will inject dynamism in some of the investment intensive sectors, which have been worst affected by the global recession and the anti-graft crackdown in the past two years," he added.
In addition to the controversial policy, the government is going to offer a special measure
called 'reduced tax rate' to boost investment in the key industrial and service sectors, officials said.
Companies will have to pay five per cent tax for the first two year of its establishment while 10 per cent tax for next two years and 15 per cent tax for next one year under the reduced tax rate system.
Barring Dhaka and Chittagong, investment in other cities and district towns of the country will enjoy unconditional investment facilities with the payment of specific tax rates.
Individual tax exemption threshold will remain unchanged at Tk 165,000. The provision for higher and special tax ceiling for women and senior citizens will be waived.
Senior citizens aged above 70 years will be exempted from payment of income tax, the officials said.
However, there is no good news for the country's more than 100 banks and non-banking financial institutions, as their corporate tax rate would be kept at 45 per cent for the next fiscal.
Top bankers and directors have earlier pleaded the government to reduce the corporate tax rate by at least 5.0 per cent, saying high rates add to the cost of fund in the country.
Income tax rates, income slabs and minimum payable taxes will remain unchanged at Tk 2000 for the fiscal 2009-10.