The budget preparation for the upcoming fiscal year 2025-26 has begun. It will be presented in June. Almost every year, there is severe criticism about the opportunity to whiten black money before the budget is announced. Economists, tax experts and ordinary taxpayers call it immoral and discriminatory. Despite this, almost every year when the budget is passed, it is seen that the government gives an opportunity to whiten black money. In this, undeclared income can be legalized by paying a certain rate of tax. Some economists call it a strategy to increase revenue, while others say it is unfair to honest taxpayers.
In the current 2024-25 fiscal year budget, the government had given the opportunity to whiten black money by paying 15 percent tax. However, after the departure of the Awami League government, the National Board of Revenue (NBR) canceled this facility on September 2 last year. As a result of this decision, to whiten black money, the maximum applicable tax is now 30 percent and a penalty of 10 percent will have to be paid on top of that. Criticism from various quarters has played a role in the cancellation of this facility to whiten black money.
Will there be an opportunity to turn black money into white in the next budget?
National Board of Revenue (NBR) Chairman Abdur Rahman Khan said, “An effort will be made to abolish the system of turning black money into white in the upcoming budget.”
“But if we fail to abolish it completely, then at least we will increase the tax rate to bring it in line with the ideal tax rate,” he said at a meeting at the Economic Reporters Forum (ERF) auditorium in Paltan, Dhaka, on Saturday (March 22).
The event, titled ‘Domestic Revenue Collection for Inclusive Growth and Development: Policy Reform Priorities for Bangladesh’, was organized by Research and Policy Integration for Development and ERF.
Currently, different tax rates apply to undisclosed investments in real estate, based on location. This rate is lower than the standard tax, considering the actual value of the land and apartments.
In response to a question, the NBR chairman said, “We want to bring the tax rate closer to the normal tax rate.”
Why are opportunities given repeatedly?
Every year, the government says that this opportunity is given to increase revenue and encourage investment. The common tone seen in the statements of the finance ministers of the previous government is that a lot of money is kept secretly without paying taxes, which is outside the economic cycle. Legalizing this will increase investment and employment.
But the reality is different. Past experience shows that even when black money is laundered, it is rarely invested in productive sectors. In most cases, it goes into the housing and land markets, which makes housing more expensive for the middle class. According to analysts, this opportunity is kept in the interests of a few powerful groups. According to economists, the opportunity to launder black money is unfair to honest taxpayers. Those who regularly pay taxes are dissatisfied when given the opportunity to launder black money. This is because honest taxpayers usually pay higher taxes, while black money holders get legitimacy by paying less taxes.
Transparency International Bangladesh (TIB) and the Centre for Policy Dialogue (CPD), a non-governmental research organisation, have described such benefits as facilitating corruption and discriminating against honest taxpayers. They say that those who regularly pay income tax pay a higher rate of tax, while those who evade taxes can launder money by paying only 10-15 percent tax.
In this context, CPD Executive Director Fahmida Khatun said, “It encourages corruption and discourages honest taxpayers. It rewards those who evade taxes. This is harmful to the economy in the long run.”
TIB Executive Director Iftekharuzzaman said, “Giving an opportunity to turn black money into white means the government itself is encouraging tax evasion.”
Protecting the interests of special groups
The opportunity to whiten black money is usually given repeatedly to protect the interests of a few special groups. According to NBR officials, the government gives the opportunity to whiten black money of politicians, corrupt bureaucrats and real estate business groups in addition to big businessmen and industrialists to bring it back into the mainstream of the economy.
1. Corrupt politicians and government officials
Many politicians and bureaucrats have huge undisclosed assets, usually acquired through bribes, commissions or irregularities. The opportunity to launder black money provides them with an easy way to legalize this illegal wealth. As a result, this facility is included in the budget almost every year for political purposes.
2. Tax evading businessmen
Many big businessmen and industrialists evade taxes by underreporting their actual income. They are waiting for the convenience of turning black money into white, so that illegal assets can be legalized by paying a lower tax rate. Many businessmen in the real estate, import-export and trade sectors are especially among the beneficiaries of this convenience.
3. Banks and financial institutions
A large portion of unaccounted money remains outside the banking channels, creating an ‘invisible’ asset in the economy. By allowing black money to be made white, this money enters the banking sector, which is profitable for banks. Especially when there is a financial crisis, the government allows this opportunity to increase liquidity in the economy.
4. Housing and construction sector
Almost every year, the housing sector is given a special opportunity to turn black money into white. Because a large part of the value of flats and land is usually undisclosed. Real estate traders put pressure on the government to ensure that this opportunity continues. As a result, investment continues.
5. Many money launderers abroad launder money abroad and later want to bring it back to the country through legal channels. If there is an opportunity to turn black money into white, they can bring that money back home by paying a lower tax rate. Especially when there is a foreign exchange crisis, the government tries to bring back money by providing such facilities.
6. Special class benefits for political reasons
At various times, opportunities are given to legalize black money for the benefit of a particular political class. Such opportunities are more often given before elections or during major political changes, so that election expenses can be made without any hindrance and party financing can be facilitated.
How much money has been laundered since independence?
Despite the criticism, the reality is that almost every budget has an opportunity to launder black money due to the interests of influential groups. Since independence, the government has given the opportunity to launder black money at various times. According to the National Board of Revenue (NBR), about 18 thousand crore taka was laundered from 1976 to 2017 using this opportunity.
In particular, during the military-backed caretaker government in 2007-08, more than 32,000 individuals laundered more than Tk 10,000 crore. However, economists believe the actual amount of black money in the country is much higher. A study by Transparency International Bangladesh (TIB) suggests that between 10 and 38 percent of the country’s gross domestic product (GDP) is circulating as black money.
What systems are in place in other countries around the world?
Many developing countries like Bangladesh offer opportunities to turn black money into white. However, in developed countries, there are provisions for large fines and punishments for tax evasion.
