The opportunity to legalise black money at nominal tax will encourage compliant taxpayers to be dishonest, said business leaders and economists at a post-budget discussion yesterday.
The reaction came after Finance Minister AHM Mustafa Kamal proposed investment of undisclosed incomes without question in special economic zones and hi-tech parks upon payment of 10 percent tax on the invested sum from July 1 this year through June 2024.
For regular taxpayers, the tax ranges from 10 percent to 30 percent depending on income.
“This will set a bad example,” said Abul Kasem Khan, a former president of the Dhaka Chamber of Commerce and Industry.
Thanks to the scope, it appears that good taxpayers will be encouraged not to pay taxes properly. They will be non-compliant and then invest in economic zones to avail the opportunity to legalise their money by paying 10 percent, he said.
“I think, you are encouraging people to be dishonest,” said Khan, also a director of AK Khan & Co., at a discussion on the proposed budget held at The Daily Star Centre in Dhaka.
The event was organised by the Institute of Chartered Accountants of Bangladesh (ICAB) and The Daily Star jointly.
As much as $79 billion would be required to meet the government’s target of raising private investment to 24 percent of GDP next fiscal year.
“But, given the rising default loans and fund shortage in banks, where will the money come from?” Khan said.
Private investment has been hovering around 22-23 percent for long.
Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, echoed Khan, saying the government should not extend the money whitening opportunity as it is not fair.
“By promoting whitening of black money you are really going to hurt the compliant taxpayers.”
At present, the income tax department does not raise any question about the sources of fund when invested in the purchase or construction of any apartment, flat or building after a certain tax is paid on the sum.
“Somebody who is not paying the proper tax, which may be over 30 percent, will be investing in an SEZ after paying only 10 percent tax and there will be no tax liability on that investment for the future. This is not right,” he added.
The participants at the discussion lauded the move to increase the tax-free turnover for small and medium enterprises and form a Tk 100 crore fund for budding startups.
They also welcomed the initiative to widen the social safety net.
The allocation for the health sector was insufficient at only 4.9 percent of the total budget of Tk 523,190 crore, said Md Shahadat Hossain, a council member of the ICAB.
He also said revenue collection would fall short of target this fiscal year.