The government in June last year granted a blanket immunity for whitening black money in a bid to bring them into the mainstream economy and generate more revenues and jobs.
But economists say such a provision does not benefit the economy much as unscrupulous people continue amassing wealth illegally and honest taxpayers and investors get discouraged.
The debate over the black money whitening surfaced again on Monday when the National Board of Revenue (NBR) said untaxed money-holders legalised the highest amount of undeclared assets in history in just six months of the current fiscal year.
A whopping Tk 10,220 crore entered the formal economy in the first half. This is largely because no government agency now raises questions about the source of funds being declared following a waiver announced in the budget in June.
On Wednesday, Finance Minister AHM Mustafa Kamal said that black money whitening had increased as the government had given the scope to invest untaxed income in the housing sector.
Until recent years, most people were unwilling to pay higher registration fees or stamp duties while selling houses. As a result, the government did not get revenue since people avoided showing the real price of a property in a bid to skip from paying the high registration fees.
In December 2019, the government reduced stamp duties and other fees on property registration.
"The economy does not benefit from offering the black money-whitening facility; rather, it causes criminalisation of both the economy and politics," said eminent economist Muinul Islam yesterday.
Islam, a former professor of the Department of Economics of the University of Chittagong, called the facility immoral, saying it punishes honest taxpayers.
"Some people are paying 15 to 25 per cent tax, while others are able to legalise black money by paying 10 per cent tax. By no means, it is acceptable."
Islam said there was no instance anywhere in the world that such legalisation brings benefit to the economy. "We have introduced a very bad system."
Zahid Hussain, a former lead economist of the World Bank's Dhaka office, said the country might collect some tax revenues and induce some investments by allowing whitening of black money at highly concessional tax rates.
However, if such policy is continued year after year, it creates incentives for making white money black and then making it white to benefit from concessional tax rates, he said.
"This is not only unfair to honest taxpayers but also harmful for tax revenue mobilisation and investment efficiency in the long run."
While unveiling the budget in June, Kamal introduced the provision that no authority, including the NBR and the Anti-Corruption Commission (ACC), can raise any question on the declaration of untaxed money.
Now, individual taxpayers are allowed to disclose any undisclosed home property, including land, building and flat, by paying tax at a particular rate per square metre.
Individual taxpayers can disclose undisclosed cash, bank deposits, savings certificates, shares, bonds or any other securities on paying taxes at a rate of 10 per cent. They can also invest in the capital market and show it in their tax returns. They have to maintain a lock-in period for a year.
Black money is largely attributed to tax evasion, and its direct impact is the loss of government revenue.
The size of the black money in Bangladesh is hard to come by. But a paper of the International Monetary Fund in 2018 gave some idea.
The size of the shadow economy in Bangladesh was 27.6 per cent of the gross domestic product as of 2015, and it averaged 33.6 per cent from 1991 to 2015, the paper said.
The shadow economy includes all economic activities which are hidden from official authorities for monetary, regulatory, and institutional reasons.
Monzur Hossain, research director of the Bangladesh Institute of Development Studies (BIDS), said the money was already absorbed in the economy in the form of bank deposits or some forms of investment.
"I don't support the wholesale scope to legalise black money. This is damaging to the economy because it encourages people to amass black money and then legalise them."
Prof Mahbubul Mokaddem, chairman of the economics department at the University of Dhaka, said if investigations were not carried out, it could not be known whether the money had been amassed through illegal means such as bribery, smuggling, drug-trafficking, and casino business.
"It is not right that the source will not be asked," he said.
Prof Mokaddem thinks that there is no weakness in the tax policy, but there is a weakness in the tax administration.
"The tax administration can't monitor properly. Even if it catches a tax-dodger, the case is settled through a corrupt means. As a result, the government is deprived of revenue."
He called for setting up a tax ombudsman, which will have personnel to look into complaints.
Khondkar Ibrahim Khaled, a former deputy governor of the central bank, said the government should carry out a study to find out why people were legalising money this year and had not done so in the past.
Zahid Hussain said it was true that policy distortions provide incentives for tax evasion leading to the creation of black money. This is particularly a problem in the real estate business where high duties and fees on land registration and deed transfer incentivise undervaluation.
"The steps taken in recent years by the government to reduce stamp duties and other fees are indeed commendable."
He said the results achieved from black money whitening policies in the past had mostly been disappointing in terms of investments and revenue collection.
"The results achieved in the first half of the current fiscal year is exceptional. This could be because of increased freedom allowed in the use of the money whitened," Zahid said.
Hossain of the BIDS called for raising the fine above the regular tax rate if scopes for legalising untaxed money were to be given.
"Institutional framework has to be strengthened. Otherwise, people will continue amassing black money and whitening them by paying just 10 per cent in penalty."
He said the government should take actions against the people who don't whiten black money.
"We will have to fix institutional weaknesses, and the ACC should go for the enforcement of laws, so that black money is not generated."
Allowing the scope for whitening black money in the name of economic recovery, increasing revenue, investment, and creating jobs will legalise money laundering and facilitate corruption, said the Transparency International Bangladesh in June.
"Such scope is unethical, discriminatory, and anti-constitutional."