I agree with prime minister Sheikh Hasina that the shadow economy cannot be brought to the mainstream if black money is not whitened. However, it first has to be understood why the shadow economy is expanding in a country like ours. How long should the policy to whiten black money continue? What is the benefit? When should this process be reined in?
We have to understand why the main players of the shadow economy do not feel encouraged to pump their hidden money to the mainstream. There is a bit of difference between black and shadow economies, from different local studies and foreign studies we have come to know the shadow economy is 30 to 85 per cent of the main economy.
Meanwhile, we have learnt there is a scope to whiten black money like the previous years in the proposed budget of 2024-25.
Irrespective of the existing laws of the country, no authority can raise any question if a taxpayer pays fixed tax rates for immovable properties like flats, apartments and land and 15 per cent tax on other resources including cash from undisclosed sources. And yet, the highest 30 per cent tax has been imposed on the legal income.
Analysing information from the National Board of Revenue (NBR), it is found that there was little response to whitening the black money in the past.
According to NBR, so far about Tk 470 billion has been legalised. The highest Tk 200 billion was legalised in the fiscal year 2020-21. At that time, a 10 per cent tax was imposed. The impact of Covid prompted the whitening of a huge amount of black money in that year. During the pandemic, economic activities and communications has slowed and so siphoning money out of the country was hardly possible. Direct investment was made in the country.
In the continuation of whitening black money, scope was given in the budget of 2023-24 so that laundered money can be brought home by paying 7 per cent tax. But at the end of the financial year, it was found that it didn't yield any results.
After independence, different governments have been giving scope to whiten black money. But there has not been much response to it. Many in the government believe these decisions are are disincentive to regular taxpayers to pay tax.
There is scope to whiten black money in many countries. The countries that have been able to identify the persons involved in tax evasion and illegal economic activities and take strong action, have been successful. In this case, they didn't make any political compromise.
On the one hand Bangladesh is imposing a higher amount of tax on the regular tax payers, yet providing scope to legalise undisclosed money without any question on the other hand. The strong logic behind this initiative was to create scope to pump the undisclosed money back into the mainstream economy.
Some people believe that more money will be laundered if this scope is not given. But is it at all possible to increase the flow of money to the macroeconomy if the money laundering is not stopped?
There are arguments in favour and against any initiative. The logic cited in favour of this initiative only reveals the financial mismanagement of the government, which does not yield any results. In recent years, the volume of laundered money has increased instead of returning money to the country.
Washington-based Global Financial Integrity (GFI) data shows at least USD 8.27 (Tk 910 billion) has been laundered from Bangladesh in the guise of international business from 2009 to 2015. Only this amount of money has been laundered by showing additional money in importing commodities and less money in exporting commodities.
It is difficult to draw a picture of money laundering as there is no universal system or international indicator to assess the amount of money laundering. But the amount is high, nobody has any doubt about it.
The issue of whitening black money is always controversial in our country. It is controversial this time too. Despite controversy, the harsh reality is that the shadow economy helps in financing the formal economic activities or this keeps the wheel of consumer expenditure rolling.
During the fiscal 2007-08 and the Covid period, even in present times, we have proof of this. However, as the lion share of this money is used in under invoicing, the government is deprived of revenue.
A country with a huge shadow economy cannot expand its prospects. Development financing also becomes challenging for them. The investment of big multinational companies is also delayed.
In this case, the best way is to rein in the expansion of black economy in an innovative way, rationalise the value of sale and buy of all government assets, encourage all to pay tax by reducing tax, take stringent measures against tax evasion and increase accountability in the financial management of the state.
*Mamun Rashid is economy analyst
*This article, originally published in Prothom Alo print and online editions, has been rewritten in English by Rabiul Islam