Money whitening scheme: Time to say goodbye
Monday, 2 November 2009
Shamsul Huq Zahid
The response from individual taxpayers to the government offer made in the national budget for the current fiscal (2009-10) to disclose their undeclared income by paying tax at a rate of only 10 per cent was very poor in the first quarter (July-September) said a report published in this daily a couple of days back.
Only eight individuals, reportedly, disclosed a small sum of Tk. 30 million paying a paltry tax of Tk 3.5 million during the period.
Though a lot of time is left, the amount disclosed in the Q1 of the current fiscal was very low compared to that whitened during the same period of the two previous fiscal years.
However, the poor response should not come as a surprise to policymakers who, while designing the offer, had expected a substantial flow of undisclosed income in economic activities, including stock market, real estate and new industries.
Theoretically, such an expectation was right. For the offer made this fiscal is more attractive than the ones made by the military-backed caretaker government during two previous fiscals.
In the fiscal 2007-08, the holders of undisclosed yet legally earned money were offered the opportunity to legalise their funds by paying 5.0 per cent penal tax, in addition to the normal rate of tax. Next year, despite strong criticism from the so-called civil society and economists, the government extended the opportunity with a 2.5 per cent hike in the penal tax. However, section of the trade bodies had encouraged the government to continue with the offer, for, what they claimed, investment's sake.
The government, it seems, is unlikely to get any encouraging response to its offer on undisclosed income in the remaining months of the current fiscal. Thus, the twin objective of fetching some additional revenue and bringing in additional investments in the capital market and other productive sectors might remain largely unfulfilled.
The main reason for the holders of undisclosed funds not being attracted to the current offer could be the absence of the 'fear' factor that prevailed during the two-year rule of the immediate past caretaker government. The other discouraging factors could be the 'investment' and 'source disclosure' conditions attached to the current offer.
There is no denying that in the first year of its rule, the caretaker government could arouse a sense of fear among the land-grabbers, corrupt politicians, bureaucrats and businessmen by its sweeping anti-graft actions. This is evident from the collection of a substantial amount of tax revenue, Tk. 8.02 billion (802 crore) against the disclosure of legally earned income during the fiscal 2007-08. But the next fiscal, the tax revenue earning from the similar offer dropped to only Tk 1.05 billion (105 crore) when the caretaker lost its bite and the people concerned developed a feeling that the days of the military- backed interim government were numbered and a political government would soon be at the helm of the statecraft.
One has to admit the fact because of the actions of the immediate past caretaker administration, more and more people are now aware of the need for paying their annual income tax. The incumbent government is expected to enjoy the fruits of such actions. Indications are there that both number of tax returns and amount of tax would be more this fiscal than those of the previous year.
But such a positive development is unlikely to happen in the case of the disclosure of untaxed income by individuals, mainly because of the absence of fear factor and the need for disclosing source of funds. Though the government has promised not to dig into the declared source of money, the holders of undisclosed funds remain skeptical about the motive of the tax officials. They a have a feeling that through such disclosures they would be inviting troubles for themselves. Given the track record of the tax officials such a fear, however, cannot be dismissed outright.
Since there is no way of knowing the colour of the money being invested in the stock market, there should be no reason for the holders of undisclosed money to pay tax at rate of 10 per cent before investing the same in stocks.
Investment of undisclosed fund in industries could be a good option for the holders of large undisclosed funds but the situation is not at all conducive to attract the same. The existing industries have been suffering day in, day out because of the poor infrastructures and power and gas supply shortage. No investor would make investment without a remarkable improvement in the power and gas situation.
Considering the criticism it has to swallow, the government should do away with the black money whitening scheme or the opportunity to disclose untaxed income by paying a nominal tax. For the National Board of Revenue (NBR) can fetch far larger amount of tax by tightening the noose around the tax evaders.
It is widely recognized that only a fraction of the individuals, firms and establishments, who are eligible for payment of tax, are paying taxes and a sizeable number of taxpayers do not pay their tax in right amount. And the tax administration has been very lenient with tax dodgers. Such leniency could be for the lack of manpower or initiative or for some other understandable reasons.
Zahidmar10@gmail.com
The response from individual taxpayers to the government offer made in the national budget for the current fiscal (2009-10) to disclose their undeclared income by paying tax at a rate of only 10 per cent was very poor in the first quarter (July-September) said a report published in this daily a couple of days back.
Only eight individuals, reportedly, disclosed a small sum of Tk. 30 million paying a paltry tax of Tk 3.5 million during the period.
Though a lot of time is left, the amount disclosed in the Q1 of the current fiscal was very low compared to that whitened during the same period of the two previous fiscal years.
However, the poor response should not come as a surprise to policymakers who, while designing the offer, had expected a substantial flow of undisclosed income in economic activities, including stock market, real estate and new industries.
Theoretically, such an expectation was right. For the offer made this fiscal is more attractive than the ones made by the military-backed caretaker government during two previous fiscals.
In the fiscal 2007-08, the holders of undisclosed yet legally earned money were offered the opportunity to legalise their funds by paying 5.0 per cent penal tax, in addition to the normal rate of tax. Next year, despite strong criticism from the so-called civil society and economists, the government extended the opportunity with a 2.5 per cent hike in the penal tax. However, section of the trade bodies had encouraged the government to continue with the offer, for, what they claimed, investment's sake.
The government, it seems, is unlikely to get any encouraging response to its offer on undisclosed income in the remaining months of the current fiscal. Thus, the twin objective of fetching some additional revenue and bringing in additional investments in the capital market and other productive sectors might remain largely unfulfilled.
The main reason for the holders of undisclosed funds not being attracted to the current offer could be the absence of the 'fear' factor that prevailed during the two-year rule of the immediate past caretaker government. The other discouraging factors could be the 'investment' and 'source disclosure' conditions attached to the current offer.
There is no denying that in the first year of its rule, the caretaker government could arouse a sense of fear among the land-grabbers, corrupt politicians, bureaucrats and businessmen by its sweeping anti-graft actions. This is evident from the collection of a substantial amount of tax revenue, Tk. 8.02 billion (802 crore) against the disclosure of legally earned income during the fiscal 2007-08. But the next fiscal, the tax revenue earning from the similar offer dropped to only Tk 1.05 billion (105 crore) when the caretaker lost its bite and the people concerned developed a feeling that the days of the military- backed interim government were numbered and a political government would soon be at the helm of the statecraft.
One has to admit the fact because of the actions of the immediate past caretaker administration, more and more people are now aware of the need for paying their annual income tax. The incumbent government is expected to enjoy the fruits of such actions. Indications are there that both number of tax returns and amount of tax would be more this fiscal than those of the previous year.
But such a positive development is unlikely to happen in the case of the disclosure of untaxed income by individuals, mainly because of the absence of fear factor and the need for disclosing source of funds. Though the government has promised not to dig into the declared source of money, the holders of undisclosed funds remain skeptical about the motive of the tax officials. They a have a feeling that through such disclosures they would be inviting troubles for themselves. Given the track record of the tax officials such a fear, however, cannot be dismissed outright.
Since there is no way of knowing the colour of the money being invested in the stock market, there should be no reason for the holders of undisclosed money to pay tax at rate of 10 per cent before investing the same in stocks.
Investment of undisclosed fund in industries could be a good option for the holders of large undisclosed funds but the situation is not at all conducive to attract the same. The existing industries have been suffering day in, day out because of the poor infrastructures and power and gas supply shortage. No investor would make investment without a remarkable improvement in the power and gas situation.
Considering the criticism it has to swallow, the government should do away with the black money whitening scheme or the opportunity to disclose untaxed income by paying a nominal tax. For the National Board of Revenue (NBR) can fetch far larger amount of tax by tightening the noose around the tax evaders.
It is widely recognized that only a fraction of the individuals, firms and establishments, who are eligible for payment of tax, are paying taxes and a sizeable number of taxpayers do not pay their tax in right amount. And the tax administration has been very lenient with tax dodgers. Such leniency could be for the lack of manpower or initiative or for some other understandable reasons.
Zahidmar10@gmail.com