Our Laws on “Black Money”: An Appraisal

The term ‘Black Money’ is a quite familiar in our economy. Black money indicates income earned from various sources in legal or illegal way but not disclosed to the Tax Authority with a view to evading tax. In a developing country like ours where tax and revenue bears the maximum portion of development expenditures of the country, black money is a serious setback in collection of revenue income. Increase of black money points its finger to the rise of illegal activities and corruption by which such black money is generated. It gives hints about the creation of black economy too. Although undisclosed income by the individuals and corporations is known as black money, there is no uniform definition of black money. Nor is there any clarification whether the sources of income need to be legal or not.

 

Sources of Black Money

 

Generally, incomes of individual and corporation in legal way have to be recorded officially in various documents. But there are scopes of evading tax where transactions have been recorded too. Incomes from illegal sources have no direct supervision of proper authority. So the tax evaders take this chance to become wealthier by creating huge profit without paying any tax. Incomes from smuggling, arms trafficking, human trafficking, drug peddling, bribery, speculative investment in share market, counterfeiting currency etc. are not disclosed to the authority. These sources are considered common sources of black money in our country. The fact that black money is engulfing our total economy was proved from a speech of Finance Minister in a post-budget (2012-2013) press conference. It was disclosed that black money occupies 45 percent to 81 percent of GDP till 2010.[1] It is easily assumed that most of such incomes come from informal sector where authority has failed to introduce proper regulations and monitoring. Money earned from informal sectors makes no contribution to the economy of Bangladesh.

Whitening the Black Money

In the year 1975, Bangladesh Government took the initiative of whitening black money for 1975-1976 fiscal years for the first time. It was the beginning of legalizing of illegally earned money. A chance was given to whiten the undisclosed money amount Tk 70000 crore but only Tk 7 crore was whitened.[2]  After that, this opportunity was given again for the next consecutive three fiscal years, from 1987-1988 to 1989-1990. Tk 200 crore, Tk 250 crore and Tk 400 crore respectively were whitened during that period.[3]

During 2000-2001 fiscal years, a chance to whiten black money was once again revived by the government and at that time Tk 1000 crore was whitened.[4] The government introduced the provision of whitening black money in their budgetary policy for 2 years initially, beginning from 2003-2004, for bringing the huge sum of money. About Tk 1175 crore, came into the economy through this process. But the record breaking amount of Tk 10000 crore was whitened during the tenure of Caretaker government because of taking stern position against black money earners.[5]

After evaluating those abovementioned statistics of whitening process, it can be considered that the steps taken to bring that money back have been successful to some extent. Yet, it is also clear that earning via illegal trade or activities have not stopped and there was no enforcement of legal action apparently to control the situation.

Reigning of Black Money Due to Legal Defects

In recent years, the importance of giving whitening black money has been questioned. Arguments for and against exists among the commercial arena and the economists. In Bangladesh, The Income Tax Ordinance, 1984 is prevailing to regulate the total tax system. There are, however, a lot of inadequacy and defects which encourage the black money hoarders to find new ways to save their income within Bangladesh and outside of Bangladesh. There is no clear indication or definition of tax evasion in the existing The Income Tax Ordinance, 1984 but the lacunas underlying in the provisions make rooms for evading taxes for the tax payers. For instance, In section 19(1) of existing Ordinace, there is a chance for assesse that if any amount credited for any income year of which no explanation about that credit has not been found in assesse’s book, it will be deemed to be as income under the head ‘income from other sources’ and Deputy Commissioner of Taxes will not inquire about the nature or source of that credit.[6] After the enactment of Money Laundering Prevention Act, 2012[7], Government and the Central Bank has taken some significant steps to stop the illegal flight of money outside of Bangladesh. But it seems as tough they have no control over the black economy developed from black money. Besides, there is provisions in section 19E (1)(a), 19(2), 19E(2)(a)(i) and (ii) of The Income Tax Ordinance, 1984 which provides for legalizing the undisclosed money by paying 10 percent tax as a penalty when paying with other taxes in proportionate with income and income tax authority will not ask any question about the sources of the income. It is argued by many that this scope of whitening of black money encourages the illegal activities in a sense.[8]

 

Moreover, section 166 of the Ordinance deals with the punishment of concealment of particulars of income.[9] But the question about the sources of income and amount of income from those sources are not to be questioned which seems authority is in the darkness about the validity and actual amount of that income. This won’t work in determining the actual income of assesse and its authentication. These provisions are yet to be enforced because of prevalence of tax amnesty. Government and law makers both are in between two fires to hold the interest of all.

Continuance of Whitening Black Money: Scope or Indulgence

Bangladesh Government takes a lot of incentives in association with National Board of Revenue for the tax payers who are reluctant to pay taxes before. Among them, disclosure of undisclosed income by investing money in stock market or buying flats and plots is a notable one. In the recent years, both these chances have been highly criticized by the society. Actually, these chances are misused by the tax evaders greatly. A short scenerio can be given here for example, in the fiscal year 2013-2014, only 237.78 crore was whitened, with the government getting tk 45 crore in taxes which was better on average  than the previous four years in collecting taxes from black money. Whenever government creates any liberal chance of whitening black money, the owners of black money takes it generously for avoiding sanctions but it is discriminating for the honest tax payers who pay taxes imposed on their legal income. Moreover, taxes from those whitened black money is not so noteworthy in comparison with the amount of black money. Notwithstanding, government cannot but open the chance of whitening black money in its budget every year, being nodded to the pressure of black money holders, most of whom are actually belonging to the mighty businessmen and their political collaborators. On their demand, chance of whitening money through investment in stock market is being provided and government gives them chance for keeping the flow of current money but this chance is actually given to the black money holders to whiten their money and in return of it, they make some interest from there.  Besides, buying flat or investment in real estate on paying ten percent fine as penalty is another laudable scope of whitening black money which is taken as an inspiration of producing more black money to the black money owners. Ultimately government’s penalty seems to be a blessing for these perpetrators. In 2017-2018 budget, silence on continuance of whitening black money issue proves the favor of government in this field.[10] So, questions are arising automatically whether it should be continued like this or not from civil society. Is not it an indulgence in the interest of these tax evaders?

Recommendations

The removing of flaws from the ordinance is important here. Some of the terms like tax evasion, undisclosed income, determination of validity of sources of income, legal sources of incomes etc. can be defined in this Ordinance newly for clarification of the provisions’ application. To cope with changing economy, this old Ordinance definitely needs some inclusion of new provisions. Besides, the amount of fine and limits of imprisonment should be increased. The Money Laundering Act, 2012, is a strong enactment in preventing laundering of illegally earned money. Here, whether both the Act and Ordinance can cooperatively or not should be answered to detain the laundering of black money.

Conclusion

Bangladesh is already on her way to thriving development of economy. But some problems still exist that are hindering her economic growth and increase of black money and its laundering is one of them. So, for the greater good, legal steps and economic policy should be formulated to control the lash of such increase.

 

[1] Muhammad Abdul Baset, Black Money in Bangladesh Economy, Para 1 https://www.scribd.com/mobile/document/101034710/Black-Money-of-Bangladesh-Economy

[2] http://bangladeshbudgetwatch.wordpress.com/2009/06/24/from-black-to-white/, Para 4

[3] ibid, Para 4

[4] ibid, Para 5

[5] ibid, Para 7

[6] The Income Tax Ordinance, 1984 Section 19(1), provides, where any sum of money credited in the books of an assessee maintained for any income year and the assessee offers no explanation about the nature and sources thereof, or the explanation offered is not, in the opinion of the Deputy Commissioner of Taxes,  satisfactory,  the sum so credited shall be deemed to his income for that income year classifiable under the head of ‘Income from other sources’.

[7] Money Laundering Prevention Act, 2012 is an amended act of 2009  seeking to control laundering money outside from Bangladesh. Bangladesh Financial Intelligence Unit, to implement the purpose of discouraging tendency of money exchange through illegal way and prevent laundering money derived from illegitimate activities, works under this Act. By pointing suspicious transactions, it takes legal steps and helps investigation authority by supplying information.

[8] The Income Ordinance, 1984 Section-19E(1)(a) provides, “whoever has not been assessed to tax for previous year or years and he has not been submitted return of income for those year of years may disclose such income in the return of income along with the income for the current assessment year.” Again, Section 19E(2) provides, “Return of income mentioned in subsection (1) shall be treated as valid if- (a) the assessee pays before the submission of return- (i) tax payable at applicable rate on total income including such income under respective  heads of income; and (ii) penalty at the rate of ten percent of tax proportionate to such income under respective heads of income.”

[9] Section 166 provides, a person is guilty of an offence punishable with imprisonment which may extend to five years but shall not be less than three moths, or with both, if he conceals the particulars, or deliberately furnishes inaccurate particulars, of his income.

10  https://opinion.bdnews24.com/2011/06/28/off-the-mark-whitening-black-money/

[10] 11 http://www.dhakatribune.com/business/regulations/2017/06/18/reform-laws-stop-money-siphoning/

 

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