The government will offer a special package allowing investment of untaxed money in the manufacturing industry in the next fiscal year beginning 1 July, subject to paying only 10% tax, according to sources at the finance ministry.
In this regard, a new section will be incorporated in the Income Tax Ordinance, named Section "19AAAAAA", which facility will be in effect till June 30, 2022, according to finance ministry sources.
Besides, the government will also allow the investment of untaxed money in the stock market, flats, land, bank deposits and savings instruments and cash, subject to paying tax plus a 5% penalty on payable tax, finance ministry officials have said.
The officials said that in response to demands from the business community and other stakeholders, the National Board of Revenue (NBR) sent a proposal to Parliament last Thursday, requesting an amendment to the finance bill which was placed in Parliament on 3 June and which did not have any provision of whitening undisclosed money.
The NBR proposed incorporating a legal indemnity provision amending the finance bill to bar relevant government agencies from asking any questions about the sources of such tainted money.
It may be recalled that from the 2019-20 financial year, the government has been allowing investment of black money in high-tech parks and economic zones, with 10% tax only. This facility will be available till June 30, 2024.
According to ministry officials, investment in the manufacturing industry has almost stopped during the ongoing Covid-19 pandemic, halting creation of new employment in the sector. Due to the pandemic, many factories have had their operations shrink or have had workers laid off to survive.
Considering this situation, the finance ministry wants to provide a special opportunity for investing in black money in the productive sector to keep the wheels of industry running and increase employment.
Talking to The Business Standard, Transparency International Bangladesh (TIB) Executive Director Dr Iftekharuzzaman said the finance minister's initiative to whiten black money amounts almost to cheating.
"During his budget speech, the minister tried to create an impression that he was not going to extend the opportunity of whitening black money. Now, bringing back this provision of whitening black money in the finance bill, after his budget speech, is a conspiracy," he added.
Observing that whitening black money is not justified in any way, Dr Iftekharuzzaman said, "It is not justified even if the finance minister imposes any penalty for whitening black money. This is discriminatory and an immoral decision."
It is totally contradictory with the spirit of the constitution and the government's zero tolerance policy regarding corruption, he added.
However, business leaders have opined that investment of black money can be allowed, but the penalty should be at least 15% of the payable tax.
Rizwan Rahman, president of the Dhaka Chamber of Commerce and Industry, said, "Allowing the investment of black money through a penalty is a good initiative. But the amount of penalty is too low and not acceptable. The government should make a reasonable difference between the regular tax rate and the penalty for legalising untaxed money."
Abul Kasem Khan, chairman of BUILD Bangladesh, said, "The black money whitening penalty should be at least 35% as the total tax burden of the high-income group goes over 35% as they need to pay tax on wealth too."
As per Section 19AAAA of the Income Tax Ordinance, to invest black money in the stock market in the next fiscal year, an investor will have to pay 25% tax plus a 5% penalty on payable tax, according to the finance ministry sources.
Under the NBR proposal, if anyone withdraws the investment from stock market before one year, he/she must pay another 10% in additional penalty, the ministry officials added.
They said under Section 19AAAAA of the Income Tax Ordinance, the government will also offer an opportunity for the legalization of undisclosed property, such as flats and land. Owners of such property will have to pay Tk200-Tk8,000 per square metre, depending on sizes and locations, alongside a 5% penalty on payable tax. Undisclosed bank deposits and savings instruments will also be allowed to be legalised through similar penalty and 25% tax.
However, in the outgoing fiscal year, the government allowed a whitening of black money by paying only a flat 10% tax.
The current black money whitening provisions in the Income Tax Ordinance 1984 – special tax treatment for investment in securities, undisclosed property, cash, etc. – will be scrapped in the upcoming budget if decided so.
NBR officials said in the first nine months of the current fiscal year, 10,034 people have legalised cash and assets worth Tk142.95 billion under the scheme, paying Tk14.39 billion in taxes to the NBR.
Of them, a total of 9,693 people whitened Tk138.60 billion mainly in cash, fixed deposit receipts, savings certificates and assets, paying Tk13.90 billion in taxes against the disclosure.
At the same time, 341 people legalised Tk4.35 billion through investment in the capital market and paid Tk490 million in taxes.
There are currently no accurate statistics on the amount of black money in the country. But a finance ministry report in 2010 revealed that the amount would be around 37% of Bangladesh's GDP.
According to the US-based think tank Global Financial Integrity, Tk5,30,000 crore was laundered from Bangladesh in the ten years between 2005 and 2015. The organisation estimates that more than Tk50,000 crore is being laundered out of Bangladesh every year.
According to a survey conducted by the Bangladesh Economic Association in 2018, undisclosed money amounting to Tk5-7 lakh crore is being circulated in Bangladesh's economy annually.