What does and doesn’t happen when money changes colour

On May 19, the finance minister said, "The scope [to whiten black money] will be there as long as undisclosed incomes will be there." (The Daily Star) Before commenting on this statement, let's take a step back and think how we got to this point.

The opportunity to whiten black money has been granted on multiple occasions by different governments of our country. The argument for it has always been that it will help bring a substantial amount of money circulating outside of the conventional economy—hence the term "black money"—into the mainstream, and thus generate more revenues and jobs. Historically, that has not been the case. Prior to FY2020-21, the response to the government's black money whitening schemes had always been poor—except maybe in FY2007-08 and FY2008-09 under the caretaker government, which, it is argued, was mainly due to the "exceptional" nature of the political and social circumstances of that time and hence is a whole different can of worms.

Despite the scheme historically failing, for five straight years—before FY2020-21—the Awami League government had allowed black money holders to whiten their assets by investing in residential buildings, among others. And this, supposedly, was mainly for those who had not filed their taxes in other years, which is the other common argument the authorities use to justify such programmes: that it provides individuals who had previously missed their yearly tax payments an opportunity to "legalise" their income by paying some sort of tax now. And yet, for five straight years, the government had failed to draw much of a response.

So, what did the government do? Well, last year, the government made a special addition to its black money whitening scheme: that black money holders could no longer be "questioned" about the source of their income no matter what—a clause the government had originally introduced the year before, but on a much more limited scale. And lo and behold, during the first nine months of FY2020-21, some 10,034 people legalised cash and assets worth Tk 142.95 billion under the provision, setting a new record.

According to some experts, this rise in black money whitening has somewhat been driven by the Covid-19 pandemic making money laundering difficult, or in other words, due to "exceptional" circumstances. Even then, a portion of the increase must have been caused by the special provision. For the sake of simplicity, let's just forget reason number one for a brief moment. What is the core motivational factor behind reason number two? That you can no longer be questioned about the source of your income. And, generally, when would you not want to be asked that question? When the source of your income is crime and/or corruption. So the argument that this facility is there to help ordinary citizens who missed their previous year's tax payments to whiten their income does not hold water. Instead, what the past record shows, particularly when considering last year's changes, is that this facility is a boon, almost exclusively, for criminals and the corrupt.

But this was bound to happen. Experts have been warning about this for quite some time because this is what happened every time similar provisions were allowed almost anywhere in the world. According to Dr Debapriya Bhattacharya, Distinguished Fellow at the CPD, "Money earned by committing crimes and corruption is being termed undisclosed income and being whitened by paying tax." In one of its reports, this newspaper succinctly put it into perspective through just one sentence: "The 10 percent tax levied on black money earned from all sources, including criminal activities like human trafficking and drug dealing, is the same rate that a job-holder earning Tk 58,000 per month will be paying as income tax this year."

Because "corrupt individuals who have amassed astronomical amounts of money are getting amnesty just by paying a nominal amount of money as tax", this money whitening scheme "will sharply increase economic discrimination in the country," according to eminent economist Rehman Sobhan. And the most extreme of these facilities, introduced last year through the Finance Bill 2020, "has created a situation where honest and regular taxpayers are paying 15 to 25 percent tax every year, while tax cheats and other offenders are whitening their money by paying only 10 percent tax," said Abdul Mazid, former chief of the National Board of Revenue.

Even the honest industrialists and investors are being discouraged. Why would they pay 15 to 25 percent tax this year when they can just wait a year and then whiten their money next year by paying 10 percent? This is possible when the government keeps providing the facility year after year. They may still pay their regular taxes if they are moral. But the question is, why do we have a law that encourages even moral individuals to commit immoral acts?

In light of all this, it is unclear what message the finance minister was trying to convey, as it is still unknown what facilities the government plans to provide in the next budget, set to be placed on June 3, in relation to black money whitening. However, if it was meant to be literal, then it was very irresponsible. What are people to make of it? 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 good is a "special opportunity" when it is becomes so "frequent"? Isn't that what the government has done with its black money whitening programme? Has it worked 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? Data and experts suggest otherwise.

The fact is, the government's focus is totally in the wrong area. Black money is created because of illegal activities, corruption and anomalies in tax policies. So the government must try and put a lid on these sources of black money, instead of giving it a new makeover. It does not solve the problem, it only creates new ones.

That's why the government should remove the facility to whiten black money in the next budget, and be more committed and sincere in its fight against corruption.

Eresh Omar Jamal is a member of the editorial team at The Daily Star. His Twitter handle is: @EreshOmarJamal