Black money whitening may return in FY25 – this time for just 15% tax

Infographic: TBS

A special opportunity to legalise undisclosed money is likely to return in the next fiscal year with amnesty – after a hiatus of four years.

Finance ministry sources with knowledge of the matter have hinted that the government is considering the inclusion of a provision in the next fiscal policy allowing black money to be legalised by paying a flat 15% tax.

The opportunity is expected to come with an amnesty, which means no government agencies will raise any questions about the sources of the money, the sources told The Business Standard.

Earlier in the fiscal 2020-21, the government allowed black money to be legalised for a 10% tax. According to sources in the National Board of Revenue (NBR), a total of 11,839 people legalised about Tk20,500 crore in FY21 – the highest in the country's history in a single year and NBR received Tk2,064 crore in revenue from those investments.

Of the amount, Tk16,830 crore of cash, which was kept in banks or cash as a temporary provision of the NBR, has been legalised by 7,055 untaxed money holders. The rest of the money was invested in land, flats, or the stock market.

The current maximum tax rate for individual taxpayers is 25%, which the NBR plans to raise to 30% in the next fiscal year.

It means that if the opportunity is offered, black money holders could potentially legalise their undeclared money by paying only half the regular tax rate.

Under the existing Income Tax Act, individuals can legalise their undeclared money by paying up to 25% tax with a 10% penalty on the payable amount.

Additionally, undisclosed money is allowed in property purchases with a location-based tax.

But in such cases, government agencies retain the right to investigate the source later. These existing provisions haven't been very effective in bringing undisclosed money into the mainstream of the economy.

Moreover, investment of undisclosed money in economic zones and high tech parks is allowed with only 10% tax. For this category, investors will enjoy the amnesty.

In FY22, individuals were allowed to bring their undeclared money abroad with a tax rate of 7%.

Economists criticise such action

However, economists are criticising such initiatives by the government.

Ahsan H Mansur, executive director of the Policy Research Institute, told The Business Standard, "Such an opportunity should not be given."

He said, "Taxpayers like us have to pay tax at the rate of 30-35%. And if those who evade tax or bring in stolen money have to pay 15% tax, it will be an unfair decision for taxpayers like us."

"Such a decision discourages people from paying taxes," he said, pointing out that "perhaps this information is being spread so money would return from abroad if this amnesty is offered."

In Bangladesh, civil society has always been against the money-whitening scope.

Military-backed govts also offered this facility

Earlier in the 2007-2008 and 2008-2009 fiscal years – during the regime of the military-backed caretaker government – Tk9,682.99 crore of black money was whitened, which was the highest amount in Bangladesh's history.

In FY21, the opportunity was given to legalise money by investing in the stock market and by parking as cash, bank deposits, and savings certificates with only a 10% tax payment.

Apart from these, the investment of undisclosed money was allowed in the purchase of land and flats, with the tax rate determined according to location and size. And the opportunity has been utilised the most in the case of the deposited money.

People from different professions, including doctors, engineers, and businessmen, have legalised their money during that time.

Since the independence of Bangladesh, most governments have provided the opportunity to legalise black money, but the initiatives have mostly failed to get any serious attention, as various government agencies were allowed to question the sources of undisclosed money.

Therefore, the NBR amended the law in 2020 so that no one could seek information about the source of the black money during or after the legalising process.

Individuals legalised undisclosed money amounting to Tk450 crore in the fiscal 2015-2016, but there is no data after that, said NBR sources.

However, the NBR added that Tk9,682.99 crore was legalised during the caretaker government era, while this amount was Tk13,372 crore during the 44 years between 1972 and 2016. The government also earned revenue amounting to Tk1, 454 crore from this process.

Economists think that owners of black money have been encouraged, as the opportunity has been given on a larger scale and at a low tax rate.