The many immoralities behind the govt’s black money whitening scheme

Bangladesh truly is unique in the sense that its government keeps granting individuals the opportunity to whiten black money, despite its questionable record of success. An amount of Tk 78 crore was whitened in the 1977-78 budget, Tk 850 crore during 1987-90, Tk 1,000 crore during 2000-01, Tk 4,403 crore during 2005-06, Tk 9,683 crore during 2007-08, Tk 1,213 crore during 2009-10, and Tk 20,600 crore in 2020-21.

Except for in 2020-21 (during Covid-19), the amount of black money that was whitened has been a drop in the ocean compared to the estimated size of our black economy.

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Pay 15% tax to whiten black money

According to a 2015 IMF report, the size of our shadow economy stood at around Tk 4,532.71 billion. A 2012 finance ministry report prepared on the underground economy estimated that black money amounted to around 45-85 percent of Bangladesh's GDP. Despite the difference in estimates, what both reports suggest is that huge sums of money are lurking in our shadow economy which are not only being generated as a result of crime and corruption, but are also being used to commit more corruption and crime. This produces an invisible cycle that is difficult to translate into monetary terms, but is devastating nonetheless in terms of the social costs that it imposes on our communities.

Under these circumstances, the government offering financial criminals a "special" facility—which is not so "special" really due to it being regularised in consecutive budgets—to whiten their black money with just a flat 15 percent tax and full amnesty is totally absurd and unjust. The current maximum tax rate for individual taxpayers is 25 percent, which the National Board of Revenue (NBR) plans to raise to 30 percent. What this means is that black money holders can legalise their undeclared money by paying only half the regular tax rate.

In its analysis on the reasons behind lower than potential revenue collection in Bangladesh, the World Bank identified a number of issues. These include poor compliance and a deficit of trust on the tax collection authorities. "Honest taxpayers get frustrated when they are subjected to additional investigation, while evaders are not brought under scrutiny," it said. Additionally, "taxpayers get demoralised with recurring opportunities to legalise undisclosed money," said the WB.

So, what message is the government trying to send with its black money whitening facility? That it is alright to have black money because the government will continue to give you the opportunity to whiten it, and for cheap? That money made from drug dealing, human trafficking and other criminal activities can now freely enter the mainstream economy under a special provision, and we are all to accept that it is for the greater good? And what about the fact that in the process, it has even been discouraging honest people, industrialists and investors to pay a higher tax, when they can just wait a year and then whiten their money by paying a lesser amount, with no questions asked? They may still pay their normal taxes if they are moral. But the question is, why do we have a law that encourages even moral individuals to commit immoral acts?

Having provided this facility repeatedly, what has the Awami League government achieved? Has it succeeded in reducing the size of the shadow economy? Has it improved the tax system? Has it reduced inequality? Has it strengthened the rule of law? Has the AL managed to reduce corruption, as promised in its successive election manifestos? The answer, as per data and experts, is a resounding "no".

What we have seen, historically, is that black money revolves around the concept of illegally obtained money through political and bureaucratic corruption and bribery at all levels of the government. And so, the problem of political and bureaucratic nepotism and favouritism is deeply entrenched in the whole black money issue. This is what Bangladesh has been grappling with, and even more so recently, with public officials across law enforcement agencies, government bureaucracy, politics, etc. amassing ludicrous amounts of wealth that completely dwarfs their declared incomes.

So, to reduce the share and influence of black money in society, we have to strengthen our institutions to fight corruption. Simultaneously, the government must try and put a lid on the sources—some of which should already be well-known—of black money, instead of giving it a new makeover by twisting laws and encouraging people to commit even more immoralities.

Eresh Omar Jamal is deputy head of editorial and opinion at The Daily Star. His X handle is @EreshOmarJamal