Cleaning black money loses steam

Black money holders appear to have lost the appetite to legalise their undisclosed wealth if the tax collected from this source in the first nine months of the fiscal year is any indication.

In fiscal 2020-21, a record Tk 2,064 crore was received by the National Board of Revenue after about Tk 20,000 crore was disclosed.

And in the first nine months of this fiscal year, Tk 99.75 crore in taxes and fines came from about Tk 300 crore of undisclosed wealth.

Of the sum, Tk 97 crore came from legitimising undisclosed property and cash holdings and Tk 2.5 crore from investing black money in the stock market.

Given the lukewarm response, the government is most likely to withdraw the provision next fiscal year, said a finance ministry division official on condition of anonymity as he is not authorised to speak with media ahead of the budget.

The reason for the poor response is the increase in the tax rate and the imposition of penalties.

This fiscal year, the tax for legalising undisclosed wealth by investing in the stock market, banks' savings products or national savings certificate is 25 percent and another 5 percent penalty on the computed tax.

The tax was 10 percent in fiscal 2020-21 and there was no additional penalty.

In fiscal 2021-22, undisclosed wealth can also be legalised by setting up new industries and the tax for that is 10 percent tax. But none took up on the offer.

The amount of tax to legalise undisclosed property, comprising houses, land, buildings or flats, has stayed unchanged from last year. That tax depends on the location of the property.

Finance Minister AHM Mustafa Kamal has not spoken of amnesty to black money yet in his discussions with the NBR on the upcoming year's budget, according to the official.

"It is economically not justified, morally not acceptable and politically not well-received by those who pay tax regularly," said Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue.

The continued provision, which gives immunity to non-compliance, sends out the wrong signal to the upstanding taxpayers and discourages them from paying taxes regularly.

"We should be focusing on enforcement of tax compliance -- there should be zero tolerance on tax evasion," he said, while citing neighbouring India's success in purging its economy of black money as an example.

However, unwilful tax defaulters can still be given a window to legalise their income, said Zahid Hussain, a former lead economist of the World Bank's Dhaka office.

It cannot be all year round.

"But ill-gotten gains should never be tolerated," he added