Quite a strong debate has been stirred up over whitening black money. This debate has arisen as the finance minister has given scope in the proposed 2019-20 budget for whitening black money of declaring undeclared income. So far black money could be whitened by purchasing a flat and paying taxes in accordance to the location and size of the flat. Now land has been thrown into the deal too. In addition to this, over the next five years if investment is made with a 10 per cent tax payment in various economic zones and hi-tech parks that are underway in the country, then the source of money will not be questioned.
The government feels that if black money can be whitened in this manner, this will halt capital flight and the money will enter the main economy of the country and can be monitored. Critics say that this will encourage illegal earnings and tax evasion, while the regular and honest taxpayers will be distraught. This will increase the disparity among the taxpayers. It will also destroy ethical practice in society.
To put it simply, black money is nothing but tax-evaded income. But this is of two types. One is sources from legal means, such as earnings of professionals or businesses. The other is illegal earnings such as income through smuggling, bribes, etc. In the first case some persons do not reveal their entire income deliberately or unintentionally or because of tax complications. This is legal undisclosed income. In the second case, as the source of income is illegal, there is no scope to pay income tax. This is illegal undisclosed income. Whether or not it would be correct to judge these two types of black money in the same manner remains a question.
The government is eager to separately consider the intentional and unintentional loan defaulters and so why should they not do the same in the case of intentional and unintentional tax evaders?
According to the Finance Act 2019 included in the proposed budget, legal undisclosed income can be whitened by purchasing land, houses or flats. By mentioning that the undisclosed income must be legal, it would seem that the government does not want indiscriminate investment of black money in the housing sector.
Then again, an added clause to this law states that in the case of investing in special economic zones and hi-tech parks with a 10 per cent tax, no questions will be asked about the source of wealth. This provision will be in effect till 30 June 2024. This will allow investment of both legitimate and illegitimate undisclosed income. The bottom line is all black money can be made white.
Will everyone take advantage of this opportunity? Past experience says even given such time and opportunity, very few actually avail such provisions. And the black money owners hardly stash their cash at home. Most of them have already invested that black money in their own names or under the names of others, in houses land, savings certificates and the share market. Many have bought dollars from the open market, many have bought luxury items. In that manner, much of the black money has entered the informal economy and is still entering.
Then again, many siphon off they money overseas. It is invested in some sector or the other there. So it is a matter of speculation as to whether they will utilise this opportunity being provided by the government.
A look at the foreign direct investment (FDI) statistics indicates that some of the money that has been smuggled out of the country is also coming back. It is basically coming back in the form of foreign investment in the hope of high profit. This is called round tripping. Much of the investments coming in from Bermuda, British Virgin Islands or Mauritius are round tripping FDI. Since no distinction is made between black or white money when it comes in the form of foreign investment and the source of the funds is not questioned, proposed provision of whitening the black money by investing in economic zones or hi-tech parks with a 10 per cent tax will be applicable for local or domestic investors only.
By creating this space to whiten black money, the finance minister is indirectly admitting that black money is on the rise in the country. Needless to say, black money is generated with the increase of corruption, irregularities and bribery. Rent seeking from small and large projects has increased and those making money in this manner are growing wealthier by the day.
The growing narcotics business, particularly yaba trade, is also a source of black money. It is those with political backing that are making this black money. And by taking up the tedious task of whitening this black money so that they may be legally secure, the finance minister’s initiative has naturally been met with a barrage of criticism and debate.
* Asjadul Kibria is a writer and journalist. He can be contacted at email@example.com. This piece appeared in Prothom Alo print and has been rewritten in English by Ayesha Kabir.