Money whitening scheme
Monday, 10 May 2010
Shamsul Huq Zahid
THE country's apex trade body, the Federation of Bangladesh Chamber of Commerce and Industry (FBCCI), and the Dhaka Stock Exchange (DSE) were the two staunch backers of the provisions for whitening undisclosed (black) money which were incorporated in the national budget for the current financial year (2009-10).
The incumbent FBCCI president in his post-budget press briefing claimed that black money would disappear from the country within the next three years and investment would pick up because of the budgetary provision of whitening black money through the payment of a nominal rate of tax to the government.
The immediate past DSE president described the budget for the current fiscal as the most capital market-friendly because of the incorporation of the provision.
Surprisingly, the pressure groups favouring the budgetary provision for whitening black money are silent this time. None has come out in the open to demand the continuation of the opportunity to whiten 'undisclosed' money. The finance minister has already indicated that any such provision may not be incorporated in the budget for the next fiscal.
The main reason behind not pressing for the continuation of money-whitening provision is the poor response to the same during the current fiscal.
Belying the high expectation of the backers of the opportunity, only 53 people availed themselves of the opportunity to declare a paltry amount of Tk. 472 million until March last. Only 16 people declared Tk. 170 million as investment in capital market and six others declared Tk 135 million for setting up industries and investing in infrastructures. The amount of revenue generated through the scheme, thus, has been very nominal.
Knowing fully well that the government is very unhappy with the poor response to the opportunity for legalising undisclosed income, the staunch supporters of the scheme did not dare this time to make a fresh proposal.
However, nothing unexpected has happened. Similar opportunity was offered from time to time since independence but the National Board of Revenue (NBR) did not have any windfall gain from the same. The military-backed caretaker government also offered the opportunity to legalise only the undisclosed money earned through legal means. It also imposed penal tax, in addition to normal tax. The response in the first year of its rule was somewhat encouraging, mainly because of the fear factor. But in the second and final year of its tenure, the response was lukewarm as the original bite of the caretakers started fading.
Actually, the very liberal attitude of the taxmen, for understandable reasons, in the matters of revenue collection has over the years encouraged tax evasion. The holders of large undisclosed money themselves are either influential people or have connections with powerful people and they do know the limits of the taxmen.
For instance, in 2008 the daily average transaction in the DSE was between Tk 6.0 to 7.0 billion. The same has now soared to Tk. 16 billion. Most part of the fund that has entered the market is untaxed. This is evident from the disclosure of a very small amount that has so far gone to the capital market.
The National Board of Revenue a few months back started talking about imposing tax on capital gains by investors in stock market. But following adverse reaction from the general investors, it has retreated and started thinking loud about levying the same only on institutional investors. Since the DSE is opposed to this kind of tax, the NBR may have to finally abandon its revised plan on capital gains tax.
Actually, nobody knows for sure the actual size of black money in Bangladesh. It is also not possible to know the actual size. Whatever is being said about its size is based on guesstimate. Some tend to believe that the size of the black money is equivalent to 40 per cent of the formal economy, which is estimated at US$ 100 billion.
The black or undisclosed money is being kept inside pillows and mattresses or deposited with banks or invested in businesses or in smuggling of goods, both regular and contraband.
There is no earthly reason to expect that anyone would show in his or her tax returns the money earned through irregular means. However, in most cases, that money is being invested in real estate or other income-generating activities. But there is no effective institution to detect such money and punish the holders of the same. The Anti-corruption Commission is mandated to detect and punish the individuals and organisations that have accumulated unearned income. But the Commission, unfortunately, has failed to rise up to the expectations of the people till now. Had the ACC been an effective institution the propensity to earn money through corrupt practices would have declined to a great extent. The hope that the ACC would one day show its teeth is also fading fast. The move to clip the wings of the ACC by amending the relevant act is a pointer to that fact.
The performance of the NBR is far from satisfactory as far as revenue generation is concerned. The earning from direct taxes has increased in recent years, but it is well below the potentials. The economy has been growing at a satisfactory rate over the years. So has the income of the people, particularly those belonging to the middleclass and the affluent section. But the rate of increase in income tax does not match with the signs of affluence visible on the streets and shopping malls.
To be honest, the mindset and modus operandi of the country's tax administration are, in many cases, outdated and complex and those need to be tuned to the demands of the time. Mere automation of tax offices, however, is unlikely to produce the desired results. The finance ministry, in the first place, would have to devise an appropriate strategy to infuse dynamism in the entire tax administration.
THE country's apex trade body, the Federation of Bangladesh Chamber of Commerce and Industry (FBCCI), and the Dhaka Stock Exchange (DSE) were the two staunch backers of the provisions for whitening undisclosed (black) money which were incorporated in the national budget for the current financial year (2009-10).
The incumbent FBCCI president in his post-budget press briefing claimed that black money would disappear from the country within the next three years and investment would pick up because of the budgetary provision of whitening black money through the payment of a nominal rate of tax to the government.
The immediate past DSE president described the budget for the current fiscal as the most capital market-friendly because of the incorporation of the provision.
Surprisingly, the pressure groups favouring the budgetary provision for whitening black money are silent this time. None has come out in the open to demand the continuation of the opportunity to whiten 'undisclosed' money. The finance minister has already indicated that any such provision may not be incorporated in the budget for the next fiscal.
The main reason behind not pressing for the continuation of money-whitening provision is the poor response to the same during the current fiscal.
Belying the high expectation of the backers of the opportunity, only 53 people availed themselves of the opportunity to declare a paltry amount of Tk. 472 million until March last. Only 16 people declared Tk. 170 million as investment in capital market and six others declared Tk 135 million for setting up industries and investing in infrastructures. The amount of revenue generated through the scheme, thus, has been very nominal.
Knowing fully well that the government is very unhappy with the poor response to the opportunity for legalising undisclosed income, the staunch supporters of the scheme did not dare this time to make a fresh proposal.
However, nothing unexpected has happened. Similar opportunity was offered from time to time since independence but the National Board of Revenue (NBR) did not have any windfall gain from the same. The military-backed caretaker government also offered the opportunity to legalise only the undisclosed money earned through legal means. It also imposed penal tax, in addition to normal tax. The response in the first year of its rule was somewhat encouraging, mainly because of the fear factor. But in the second and final year of its tenure, the response was lukewarm as the original bite of the caretakers started fading.
Actually, the very liberal attitude of the taxmen, for understandable reasons, in the matters of revenue collection has over the years encouraged tax evasion. The holders of large undisclosed money themselves are either influential people or have connections with powerful people and they do know the limits of the taxmen.
For instance, in 2008 the daily average transaction in the DSE was between Tk 6.0 to 7.0 billion. The same has now soared to Tk. 16 billion. Most part of the fund that has entered the market is untaxed. This is evident from the disclosure of a very small amount that has so far gone to the capital market.
The National Board of Revenue a few months back started talking about imposing tax on capital gains by investors in stock market. But following adverse reaction from the general investors, it has retreated and started thinking loud about levying the same only on institutional investors. Since the DSE is opposed to this kind of tax, the NBR may have to finally abandon its revised plan on capital gains tax.
Actually, nobody knows for sure the actual size of black money in Bangladesh. It is also not possible to know the actual size. Whatever is being said about its size is based on guesstimate. Some tend to believe that the size of the black money is equivalent to 40 per cent of the formal economy, which is estimated at US$ 100 billion.
The black or undisclosed money is being kept inside pillows and mattresses or deposited with banks or invested in businesses or in smuggling of goods, both regular and contraband.
There is no earthly reason to expect that anyone would show in his or her tax returns the money earned through irregular means. However, in most cases, that money is being invested in real estate or other income-generating activities. But there is no effective institution to detect such money and punish the holders of the same. The Anti-corruption Commission is mandated to detect and punish the individuals and organisations that have accumulated unearned income. But the Commission, unfortunately, has failed to rise up to the expectations of the people till now. Had the ACC been an effective institution the propensity to earn money through corrupt practices would have declined to a great extent. The hope that the ACC would one day show its teeth is also fading fast. The move to clip the wings of the ACC by amending the relevant act is a pointer to that fact.
The performance of the NBR is far from satisfactory as far as revenue generation is concerned. The earning from direct taxes has increased in recent years, but it is well below the potentials. The economy has been growing at a satisfactory rate over the years. So has the income of the people, particularly those belonging to the middleclass and the affluent section. But the rate of increase in income tax does not match with the signs of affluence visible on the streets and shopping malls.
To be honest, the mindset and modus operandi of the country's tax administration are, in many cases, outdated and complex and those need to be tuned to the demands of the time. Mere automation of tax offices, however, is unlikely to produce the desired results. The finance ministry, in the first place, would have to devise an appropriate strategy to infuse dynamism in the entire tax administration.