Boon for tax-dodgers, bane for taxpayers

Tk 18,000 crore whitened since ’76; only Tk 2,285 crore pumped into industries, stocks
The provision for whitening black money in the proposed new budget comes with certain strict conditions this time, but the rate of tax for whitening money still remains unduly favourable for black money owners, compared to regular income tax rates, just like previous similar provisions.
Since the country’s independence, scope for whitening money was provided 9 times in different ways, and Tk 18,091 crore was legalised while the state got Tk 1,480 crore in tax on the amount.
Opportunities of whitening money by investing in industries and the share market were also provided several times, and Tk 2,285 crore was legalised through that channel.
During the immediate past caretaker regime the highest amount of Tk 9,682 crore was whitened in two phases, but during the period a ‘fear factor’ was also in play, said sources.
During his budget speech, the incumbent finance minister said without elaborating the details that black money can be whitened by investing in the share market, infrastructure building, and in selected industries, if 10 percent tax is paid on the invested amount.
Moreover, black money owners may also purchase only one flat per person with their illegal money, whitening the amount by paying special taxes per square metre (sqm) at variegated rates based on sizes and locations of the flats.
The details are now available in a draft statutory regulatory order (SRO) prepared by the National Board of Revenue (NBR).
The SRO says, when an individual will whiten black money by investing in designated industries, he or she must declare to NBR how much job opportunity that investment will create. After the enterprise begins operation, NBR will examine how many jobs have actually been created. If the findings contradict the claim of the investor, the money whitening opportunity with 10 percent tax for the individual will be revoked, and he or she will then have to pay the regular rate of tax on the amount invested.
The industrial sectors in which black money owners may invest their money are: power, energy, river or sea ports, container terminals, gas pipelines, solar power plants, monorails, subways, elevated roads, flyovers, telecom infrastructure (except mobile phone services), water treatment plants, liquefied natural gas terminals, pharmaceuticals, textiles, spinning, MSS rods, corrugated iron sheets, plastic industries, etc.
If a black money owner invests in the share market to whiten money, that investment will be locked in the sector for a minimum of two years.
In cases of flat purchase with black money, the purchasers must pay taxes in higher rates than what had been offered with similar previous opportunities. There will be six different slabs of such special taxes.
For purchasing a flat in residential areas of Dhaka and Chittagong, a black money owner must pay Tk 800 per square metre (sqm) for a plinth area of less than 100 sqm; Tk 1,000 per sqm for a plinth area of more than 100 sqm but below 200 sqm, and Tk 1,500 per sqm for a plinth area of more than 200 sqm. Previous governments also offered such opportunities in two slabs with tax rates of Tk 300 per sqm, and Tk 500 per sqm.
For purchasing flats in residential areas outside Dhaka and Chittagong, a black money owner must pay taxes in similar three slabs as well at the rates of Tk 400 per sqm, Tk 600 per sqm, and Tk 1,000 per sqm.
Black money owners got opportunities to whiten their money by paying 10 percent tax during past Awami League (AL) and BNP regimes as well. During the regime of Ershad, they paid 20 percent tax to whiten money, and 25 percent was paid during Zia’s regime when the opportunity was first introduced.
Moreover, black money owners were also given the opportunity of enjoying zero tax facility for whitening their money, if they invested in industries during past regimes of both AL and BNP.
Between June 4, 2007 and September 30, 2007 during the immediate past caretaker regime, an opportunity was provided to legalise undisclosed money by paying 5 percent fine on the amount whitened, but on top of regular tax on the amount. Taking the opportunity Tk 8,895 crore was whitened, and the state received Tk 803 crore in tax.
The caretaker government then again gave the opportunity between July 1, 2008 and October 31, 2008. But that time around money whiteners had to pay 7.5 percent fine on top of the regular tax paid on the amount whitened. The amount of money whitened during the period was Tk 787 crore, with Tk 108 crore going to the state coffer as tax.
During BNP-Jamaat-led four-party alliance rule, no question was raised about the amount whitened and no tax was required, if it was invested in trading businesses, industries producing commodities and services, and in the share market between July 1, 2002 and June 30, 2005; resulting in whitening of Tk 1,325 crore without any money going to the state as tax.
In fiscal year 2005-’06, at the end of the last BNP regime, a scope of whitening money by paying only 7.5 percent tax was provided, resulting in legalisation of Tk 4,603 crore, with Tk 345 crore going to the state as tax.
During the last AL regime, the scope was given to whiten money in two ways between January 1, 1997 and December 31, 1999.
In cases of investments in expansion, renovation or modernisation of existing industries, and in the share market, black money could be legalised by paying 7.5 percent tax on the invested amount. The process saw Tk 125 crore being whitened, with the state getting Tk 9 crore in tax.
The other provision was for whitening money without paying any tax on the whitened amount, if the amount was invested in newly established industries which would pay regular taxes. But the industry would enjoy a tax holiday if 7.5 percent whitening tax was paid on the invested amount. Under the provision, Tk 435 crore was legalised, but the state did not get any tax from whitening of black money.
During the same tenure of AL in power, the government between July 1, 2000 and June 30, 2001 gave money whitening opportunity again with the provision of paying 10 percent tax on the amount whitened. The move helped to whiten Tk 1,000 crore, and the state got Tk 100 crore in tax.
During Ershad’s regime, a similar opportunity was given in exchange for paying 10 percent tax on the amount whitened between 1987 and 1990, if the whitened money was invested in industries, or by paying 20 percent tax on the amount to be whitened, if not invested in industries. The provision saw Tk 850 crore being whitened while Tk 115 crore went to the state as tax.
The first opportunity to whiten money in fiscal year 1976-’77, saw Tk 70 crore being whitened in exchange for payment of 25 percent tax on the whitened amount.

Courtesy of The Daily Star