LOOKING BACK: BUDGET FY2016-17 Legalisation of undisclosed money loses efficacy

The scope that was kept in the budget for legalising undisclosed money could hardly stop capital flight and make the economy vibrant in the outgoing 2017 financial year, as in the past, as people holding undisclosed money barely took the chance, economists, tax officials and industry insiders said. 
They said that the provision, which has been kept in the budget for years, had already lost its efficacy. 
The provision also brought hardly any positive impact on domestic resource mobilisation rather acted as a disincentive to honest taxpayers, they said, adding that the scope also encouraged the accumulation of undisclosed money. 
National Board of Revenue officials said that the government offered the scope, in various forms, for legalising untaxed money expecting that it would bring black money into the mainstream economy, prevent money laundering and boost revenue collection.
The revenue board even stopped collecting data on the outcome of the provision, including how many people invested how much money under the provision, facing a dismal response from untaxed money holders, they added. 
The Income Tax Ordinance 1984 allows people to legalise undisclosed money by purchasing residential buildings and apartments paying tax at varying rate for different cities up to Tk 7,000 per square metre and investing in income-generating sectors paying 10 per cent penalty along with regular tax at the rate of 30 per cent. 
NBR officials said that the provision might not be scrapped and the scope might be kept open in the next budgets also despite protests from different quarters.
According to the revenue board, some 2,755 people legalised undisclosed money in financial year 2013-14 through investment in real estate and income generating sectors paying Tk 44 crore in tax.
In 2014-15, only 222 people legalised Tk 676.47 crore through investment in income generating sectors paying Tk 27.54 crore in income tax. There was no data on investment in real estate in the year. 
Since 1976, people holding untaxed money legalised about Tk 14,000 crore and the government got about Tk 1,500 crore in taxes.
Real Estate and Housing Association of Bangladesh said that the provision could not put any impact in the
sector in 2016-17 like previous years.
REHAB vice-president Liakat Ali Bhuiyan told New Age on Saturday that they had no data on investment under the provision but it seemed that a few people might have made a little amount of investment of such money in buying apartments. 
The provision failed to make impact on the business as the sector continued to languish, he said. 
People concerned did not took the scope in fear of facing corruption charges and questions for the source of the money by the Anti-Corruption Commission and other law enforcing agencies in future as the government did not give impunity from such actions, he said. 
Such illegal money, according to a finance ministry study, accounts for between 46 per cent and 81 per cent of the gross domestic product. 
A significant amount of untaxed money is being siphoned off from the country every year.
The Global Financial Integrity, a Washington-based research organisation, in its latest report published on May 1, showed that about Tk 72,000 crore was laundered from the country in 2014 alone. 
Former finance adviser to caretaker government ABM Mirza Azizul Islam said that the provision for legalising untaxed money should be scrapped forever as such facility encouraged accumulation of undisclosed money by dishonest people and discouraged the honest ones.
The provision never brought any benefit to the economy, he said, adding that no impact on investment, and revenue generation was seen in the past, except in 2008 when a special situation prevailed in the country. 
Former revenue board chairman Abdul Mazid said that the provision lost its effectiveness, significance and rationale because of offering the opportunity repeatedly.
It would neither bring investment nor tax in absence of exemplary punishment for holding untaxed money, he said. 
The government should offer the scope only for a limited time with complete impunity and announce exemplary punishment for not legalising untaxed money in time, he added.
Centre for Policy Dialogue research fellow Towfiqul Islam Khan said that the way the benefit was given was not economically justifiable and morally acceptable. 
The scope did not put any impact on the economy rather it acted as disincentive to honest taxpayers, he said.
The total issue should be addressed bringing under a legal framework to end the source of untaxed money generation, he said. 

 

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