Corporates may get black money-whitening facility in next budget

Black money may make a comeback as the government considers reinstating black money-whitening facility in the new budget, starting with corporate amnesty, trying to resuscitate sluggish economic activity.
It comes out as a first-ever step, officials say, to allow corporate taxpayers for whitening what is commonly known as black money without facing any question from taxmen.
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.
The proposal for interpolating a new provision into the Income Tax Act 2023 has already been approved by Prime Minister Sheikh Hasina, officials sources said.
Officials familiar with the developments in budget exercise have said the amnesty for declaring undisclosed income is aimed at allowing corporate taxpayers to get their financial statements in the tax file regularized through Document Verification System.
Currently, many of the corporate taxpayers face difficulties in showing their previous undisclosed incomes as they have to go through Document Verification System (DVS) to get their FS audited by chartered accountants.
Tax experts think the facility may help government bring transparency in corporate-book accounts many of which are grossly cooked and tampered with on different purposes.
Taxmen are going to apply 'Grandfather clause' in that case to offer general amnesty allowing corporate taxpayers to submit corrected tax returns once, they said.
Tax officials guess some two-thirds of the corporate-tax returns may need general amnesty to avoid high penalty by taxmen as their current tax year's pre-verified financial statements are unlikely to match with previous ones.
Under the system, introduced by Institute of Chartered Accountants of Bangladesh (ICAB), companies will have to keep one financial statement approved by a chartered accountant.
Council member and former president of the ICAB Md Humayun Kabir, also Income Standing Committee Chairman of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), says the measure, if incorporated into the budget, may help both banking sector and corporate taxpayers.
"Companies that have shown higher income in the banks to obtain loan would not be able to give the actual FS now without such amnesties," he adds.
The opportunity, if offered, for corporate taxpayers should not be compared with such amnesties for individual taxpayers on ethical grounds, he views.
"It has a staggering effect as banks that have approved loan on the basis of FS would also face problem to justify their loan approval based on assets of a company," he says about the double jeopardy.
Apparently it has been assumed that the government would lose 5.0-to 10-percent revenue with the opportunity but it would pay off later and have an impact on overall financial governance, the apex trade body's income-tax expert says to show merits of the measure.
Currently, publicly listed companies are paying corporate tax at 20 to 22.5 per cent, other than tobacco and financial institutions, while non-listed companies have to pay tax 27.5 per cent to 30 per cent.
Allegations have it that many of the companies were maintaining multiple books of account to evade taxes and also to apply for bank loans.
Tax officials say main objective of the opportunity is to allow the corporate taxpayers to show previous undisclosed incomes without facing any question from taxmen and sans declaring sources.
Also, many of the individual taxpayers who sold land or flats are compelled to bear the brunt of undisclosed income due differences in mouza value and market value.
Tax officials say those individuals would be able to have their income legalised by showing the additional receipt in the tax file.
Some sectors might be defined for investment of undisclosed income such as cash, bank deposits, savings certificates, real-estate, capital market and so.
Although CA-audited financial statement is mandatory with each of the corporate-tax returns, CAs earlier used to certify only 10,000 to 12,000 financials adjoined to corporate-tax returns a year, out of 30,000 corporate- tax returns received by tax authority.
The ICAB introduced DVS on December 1, 2020 and signed memorandum of understanding with the NBR and other departments to make it mandatory.
Tax experts say the corporate taxpayers would need general amnesty as taxmen would only accept only DVS-verified financial statement with returns.
Earlier, noted economists like Dr Ahsan H Mansur, Executive Director of Policy Research Institute (PRI), had strongly recommended allowing the corporate taxpayers to correct their financial statements allowing an amnesty for a single time.
In 2020-21, such money-whitening scheme with a 10-percent flat rate of tax had been offered as part of an effort to breathe a fresh vigour into the economy, hit hard by the Covid-19 pandemic.
In that financial year, the NBR earned around Tk 20 billion, a record since inception of Bangladesh, by roping the fugitive money in the mainstream of economy, which saw a record whitening of nearly Tk 144.59 billion.
In the previous 15 years till 2019-20, undeclared income worth Tk 145. 96 billion had been legalized through a scope given by the government.
From 1971 to 2021, an undisclosed income of about Tk 308.24 billion was disclosed mobilizing taxes worth Tk 39 billion to the public exchequer.
The amount of disclosure of undisclosed income was Tk 22.5 million until 1975 followed by Tk 507.6 million from 1976 to 1980, Tk 458.9 million from 1981 to 1990, Tk 1.50 billion from 1991 to 1996.
Some Tk 9.50 billion worth of black money was whitened from 1997 to 2000 while Tk 8.27 billion from 2001 to 2006, Tk 16.82 billion from 2007 to 2009, Tk 18.05 billion from 2009 to 2013, Tk 111 billion from 2013 to 2020.
Dr Ahsan H Mansur says the opportunity should have been given in the year DVS came into force.
The economist, however, suggests "the tax rate could be kept like regular corporate tax by waiving penalty".
Dr Mansur finds such opportunity for individual taxpayers as "unjust".

[email protected]