The upcoming budget for fiscal 2020-21 is likely to create ample facilities for money laundering. The opportunity to whiten black money is being considered in order to increase revenue as well as investment amid the coronavirus situation.
Sources in the National Board of Revenue (NBR) have said that two means of whitening black money are under consideration. Firstly, there will be wide scope to launder money without any questions asked. In that case, a declaration of around 5 to 10 percent of money earned by illegal means will not be questioned. A similar opportunity had been offered by the last caretaker government.
NBR is like a drowning man clinging on to the last straw. Such money laundering facilities have never brought in significant amounts of revenue in the past and will not do so in the future either.Ahsan H Mansur, executive director of Policy Research Institute (PRI)
The second means to ‘clean’ illegally earned money will be to further expand the scope of laundering the black money. In the prevailing circumstances there is scope to whiten black money by purchasing flats and paying a certain amount of tax, depending in the area. Depending whether the flat is purchased in the capital city Dhaka, Chattogram, district towns, of municipal areas, if Tk 500 to Tk 5000 is paid as tax per sq metre, NBR will not question the source of income. In the coming budget, these taxes may even be reduced so as to facilitate investment of back money.
In order to beef up investment, in the current financial year there is scope to whiten black money in the economic zones and high tech parks of the country. If 10 per cent of the investment is paid as taxes, NBR will have no queries about the source of the invested funds. This opportunity is valid till June 2024. New areas of investment may be added in this regard in the next fiscal. These could include the agricultural processing industry, large infrastructure construction, etc.
NBR sources have said that the final decisions about means to laundering questionable funds will be taken after top level discussions with the government.
Executive director of Policy Research Institute (PRI), Ahsan H Mansur, is against the facility to whiten black money. Speaking to Prothom Alo, he said, “NBR is like a drowning man clinging on to the last straw. Such money laundering facilities have never brought in significant amounts of revenue in the past and will not do so in the future either.” He said that the move is justified by pointing to investments, but how many industrial entrepreneurs have actually built industries with their black money?”
No one has invested in the high-tech parks or economic zones this fiscal as yet. Nor has there been much response to the offer of purchasing flats with black money. Hardly even 100 flats have been bought in this manner over the past year.
There has also been demand for corporate taxes to be slashed. NBR has so far not been in favour of cutting corporate taxes, but the final decision will be taken by the top level of government.
So far there the scope to blacken white money has been offered 16 times in the country and this has legitimised around Tk 140 billion (Tk 14,000 crore). The most black money was whitened during the 2007-2008 caretaker government term when 32,558 individuals and companies grabbed this chance. At that time Tk 96.83 billion (Tk 9,683 crore) was whitened.
What else is there in the budget?
NBR held a meeting with the prime minister and the finance minister regarding the budget before Eid. The prime minister gave certain directives regarding the budget and a similar meeting may be held in the coming week to finalise the budget proposals.
The coronavirus situation is pivotal to tax and duty cuts in the coming budget. It has been decided on principle to increase the income ceiling for tax payment in order to give some relief to the marginal tax payers. Presently no tax is to be paid in an annual income of up till Tk 250,000, but this will be extended so income up till Tk 275,000 or Tk 300,000 is tax free. The lowest income tax rate will be lessened from 10 percent to 5 percent.
There has also been demand for corporate taxes to be slashed. NBR has so far not been in favour of cutting corporate taxes, but the final decision will be taken by the top level of government.
The new budget will have a lot of concessions for the health sector. There will be tax cuts in the taxpayers’ medical allowance.
The 5 per cent advance duty on capital machinery import may be withdrawn. The .25 per cent tax cut at source for the readymade garment industry and other export sectors will remain intact.
Import of personal protection equipment will be exempt from duty, VAT, advance duty and such taxes for the next one year. Isopropyl alcohol, the raw material for hand sanitisers, will also be exempt from import duty.
There will be no significant concession for VAT in the coming financial year. But advance VAT in the case of imports may be withdrawn or the list of items in this list may be expanded. There will be no change in cigarette prices despite demands in this regard.
The budget will also declare that from July this year, businesspersons can buy electronic fiscal devices (EFS) to calculate VAT, at cost price. So far 3000 EFS have been imported.