Feeding the underground economy | The Daily Star
In the first 10 months of the outgoing fiscal year, Tk 14,459.40 crore of undisclosed wealth was legalized in the country, as reported The Daily Star citing data from the National Board of Revenue (NBR) – which the government says will play an important role in restarting the economy by injecting cash flow amid the financial hardship brought on by the pandemic.
However, this record-breaking illegal money laundering raises important questions about its social, economic and political implications.
To begin with, this practice is unconstitutional. “The practice of providing such opportunities is unconstitutional. Article 20 (2) of the constitution prohibits unauthorized income,” said Dr Iftekharuzzaman, executive director of Transparency International Bangladesh, discussing the matter with this writer. . The said article of the constitution states: “The State will endeavor to create conditions in which, in general principle, people will not be able to enjoy unearned income, and in which human labor in all its forms, intellectual and physical , will become a more complete expression of the creative effort and of the human personality. “
Unfortunately, for Bangladesh, laundering black money has become quite the norm. This is not the first time that such an opportunity has been given to owners of illegal money to legalize their assets. Since 1975, there have been 16 instances where this opportunity has been offered during the terms of various governments, with the assumption that it would increase cash flow in the economy and prevent money laundering. The current government itself has offered this opportunity a total of eight times since fiscal year 2012-2013.
In most of these scenarios, the reaction of owners of illegal species had been limited. Between 1971 and 2017, according to the NBR, a total of Tk 18,372.13 crore had been legalized, of which the government collected Tk 1,529.46 crore in taxes. Of this amount, Tk 9,683 crore had been laundered during the army-backed interim government regime in 2007-09.
Despite this low volume, this provision has been provided to owners of black money time and time again. The sudden increase in the legalization of black money in fiscal year 2021 can be attributed to two factors. First, the provision that no authority will question the source of the money – including the NBR and the Anti-Corruption Commission – has given tax evaders and corrupt individuals the ability to take advantage of this opportunity to launder their money. illegal wealth without having to be held accountable for how they earned it. NBR President Abu Hena Md. Rahmatul Muneem himself was quoted by Prothom Alo saying that “if an organization raises questions about this it will be unfair and it should not be. We spoke to organizations that might raise questions about the legalization of untaxed money and asked them to do not do it”.
Second, experts have suggested that since Covid-19 has impacted economic activities across the world, many people have found it difficult to transfer their money to other countries. Thus, they had to resort to laundering their money by taking advantage of the wholesale opportunity offered by the government.
And it seems that this practice cannot be stopped. It’s puzzling why this year – even after saying earlier that the wholesale money laundering opportunity will not be offered in the FY2022 budget – the finance minister himself has had to reverse his words, saying that this provision could also be extended to this exercise.
The practice of offering the ability to legalize black money itself is unethical. And even the tax – a measly 10% – that must be paid to launder illegal money is a blatant demonstration of social injustice. While the average law-abiding taxpayer pays around 20-25% in taxes, someone in possession of black money can launder it by paying only a 10% tax. This practice is exclusive in nature and serves to punish law-abiding citizens who comply with local laws. It essentially discourages people from paying their taxes, fuels the corrupt system, encourages non-compliance and crime, and deepens social and economic inequalities.
Bangladesh’s tax-to-GDP ratio, one of the lowest in South Asia, hovering around 9% on average and falling to 7.9% in FY2020, should be of concern to policymakers. There are fears that such disheartening policy decisions by the government will further undermine the BNR’s initiatives to boost tax collection and improve this ratio in the years to come.
Additionally, this practice of providing a window to legalize black money will hamper government measures to curb corruption and shrink the size of the country’s black economy. A 2013 study commissioned by the government of Bangladesh estimated the size of the underground economy in the country to be 62.75% of nominal GDP in 2010. More recently, a 2018 IMF study, which mainly covered legal activities and attempted to exclude illegal activities. activities, such as gambling and prostitution, suggest that the size of the underground economy is around 30 percent. One can only imagine what the number would look like if the IMF study were more holistic in nature.
And these shady and illegal schemes, recurring more and more frequently, directly contribute to corruption.
“This is discriminatory in nature because it forces ordinary people to pay around 20% tax, while corrupt people who earn black money only pay 10% to launder their illegal wealth. This continued opportunity offered by the government to launder black money sends a very bad message to the people, a message that promotes and protects corruption, ”said Dr Iftekharuzzaman.
He added: “From a social point of view, the implication of this practice is serious. The government flaunts the fact that more than Tk 1,445.94 crore has been earned in taxes due to money laundering. black money However, compared to the opportunity cost of it – the ethical and moral compromise it demands – this sum is very insignificant.
The turnaround the government has taken with the suggestion that this possibility could be extended beyond June 30 is worrying to say the least. A budget is a serious document that cannot be changed overnight. It is a major political issue. The government’s sudden change in stance indicates external pressure from privileged circles to legalize black money. One wonders how this decision conforms to the government’s zero tolerance policy towards corruption?
Instead of facilitating black money laundering, the government should focus on taking action to prevent the growth of the underground economy. He must seek the source of this large volume of black money that is strengthening our underground economy and take punitive action against those who work to sabotage the economy and harm the poor and the middle class for their own selfish and illegal gains.
This practice only creates an artificial bubble of illegal money flow, which will burst at any time and cause widespread social and economic instability that will be difficult to manage. It is a disaster in the making. It would be very unfortunate and detrimental to the growth of the nation if the government gives in to outside pressure to re-offer this provision. It is unconstitutional, ethically wrong and cannot be justified by any excuse. Immediate action should be taken not only to punish those who raise money illegally, but also to contain the size of our burgeoning underground economy. Now is not the time to turn around, it is time to act to make things right, to promote social and economic equity. And the government needs to demonstrate strong political will to achieve this.
Tasneem Tayeb is a columnist for The Daily Star. His Twitter handle is: @tasneem_tayeb