Undisclosed income, black money and investments
Saturday, 12 June 2010
Mahmudur Rahman
The Finance Ministers sound almost apologetic whenever the issue of legalising black or undisclosed money is raised. It began with the provision of payment of a certain amount of tax, was then revised into a policy allowing investments in shares and real estate and has now been restricted only to investment in an infrastructural fund or bond.
Yet every year, shortly before the budget the same Finance Ministers sound emphatically enthusiastic in saying they wouldn't allow this to continue. Then of course the pressure from some interest groups comes in to bear and then ways are found for some form of accommodation. In some ways the process to be adopted in channelling undisclosed and black money into the economy always has been and will always be a dilemma.
It should, however, be noted that though black money and undisclosed income, from a purely theoretical angle, are the same, there is, in the real world, a difference between the two. This is because of the widespread practice of tax avoidance or tax evasion in the country. Black money is more in the nature of earnings from all blatantly unlawful or illegal activities and undisclosed income does not necessarily accrue from such activities.
However, allowing investments of both undisclosed income and black money encourages the growth of their sources and creates despondence among the genuine tax payers. The rates at which such money is taxed in conversion to white, is also up for debate. Whereas the tax payer pays in slabs, the evader has the benefit of a flat 10% that looks more like an investment than a punishment.
Then again no measures are in place to identify and distinguish between 'undisclosed' money and that acquired 'illegally'. The tips and gratuities handed out, the monthly subsistence allowance to spouses are just two examples in a long list of sources of undisclosed money. More often than not the individual would rather not have to face up to the unforgiving and unbelieving taxman than own up.
When it comes from 'illegally acquired' or pure black money the matter becomes serious. Too often, too many apparently low-paid employees flout flats and multi-storeyed buildings as their assets. People with apparently no source of income are seen driving flashy cars. How they escape the scrutiny of the taxman is another question altogether. The dark side to allowing this income is that it is being legitimised and worse still the means through which such wealth is accumulated is further encouraged.
Permitting such investments does in a way openly admit the failings of the relevant authorities in doing what they are supposed to. It would have been a different proposition provided the investments were a one-off affair. Because they aren't, the encouragement to do wrong is provided and allows the dubious nexus of illegal activity to further flourish. How that helps the development of the country is up in the air.
(The writer is a former Head of Corporate & Regulatory Affairs of British American Tobacco Bangladesh, former Chief Executive Officer of Bangladesh Cricket Board and specializes in corporate affairs, communications and corporate social responsibility. He can be reached at e-mail: mahmudrahman @gmail. com)
The Finance Ministers sound almost apologetic whenever the issue of legalising black or undisclosed money is raised. It began with the provision of payment of a certain amount of tax, was then revised into a policy allowing investments in shares and real estate and has now been restricted only to investment in an infrastructural fund or bond.
Yet every year, shortly before the budget the same Finance Ministers sound emphatically enthusiastic in saying they wouldn't allow this to continue. Then of course the pressure from some interest groups comes in to bear and then ways are found for some form of accommodation. In some ways the process to be adopted in channelling undisclosed and black money into the economy always has been and will always be a dilemma.
It should, however, be noted that though black money and undisclosed income, from a purely theoretical angle, are the same, there is, in the real world, a difference between the two. This is because of the widespread practice of tax avoidance or tax evasion in the country. Black money is more in the nature of earnings from all blatantly unlawful or illegal activities and undisclosed income does not necessarily accrue from such activities.
However, allowing investments of both undisclosed income and black money encourages the growth of their sources and creates despondence among the genuine tax payers. The rates at which such money is taxed in conversion to white, is also up for debate. Whereas the tax payer pays in slabs, the evader has the benefit of a flat 10% that looks more like an investment than a punishment.
Then again no measures are in place to identify and distinguish between 'undisclosed' money and that acquired 'illegally'. The tips and gratuities handed out, the monthly subsistence allowance to spouses are just two examples in a long list of sources of undisclosed money. More often than not the individual would rather not have to face up to the unforgiving and unbelieving taxman than own up.
When it comes from 'illegally acquired' or pure black money the matter becomes serious. Too often, too many apparently low-paid employees flout flats and multi-storeyed buildings as their assets. People with apparently no source of income are seen driving flashy cars. How they escape the scrutiny of the taxman is another question altogether. The dark side to allowing this income is that it is being legitimised and worse still the means through which such wealth is accumulated is further encouraged.
Permitting such investments does in a way openly admit the failings of the relevant authorities in doing what they are supposed to. It would have been a different proposition provided the investments were a one-off affair. Because they aren't, the encouragement to do wrong is provided and allows the dubious nexus of illegal activity to further flourish. How that helps the development of the country is up in the air.
(The writer is a former Head of Corporate & Regulatory Affairs of British American Tobacco Bangladesh, former Chief Executive Officer of Bangladesh Cricket Board and specializes in corporate affairs, communications and corporate social responsibility. He can be reached at e-mail: mahmudrahman @gmail. com)