The government received a lukewarm response on its black money-whitening scheme during the first quarter of the current fiscal year as it toughened the terms in the budget with mounting taxes, sources said.
Investing such undisclosed money in stocks is one of the main windows offered for its mainstreaming from the grey area of the economy and tax-havens. But only one person invested his undisclosed money worth some Tk 0.3 million paying Tk 0.1 million in taxes in the capital market in the July-September period.
Such a situation came clear from the recently compiled data of the National Board of Revenue (NBR), which also shows a poor picture of the entire scheme on washing white the 'black money'.
Last year, too, stock investment from such money was low as 286 individuals disclosed Tk 4.0 billion through investing in the capital market.
During the Q1 of the current fiscal year, a total of 122 people availed of the amnesty paying Tk 33 million in taxes for disclosing wealth worth Tk 150 million in the forms of cash, house-property, flat or land.
Talking to the FE, a senior official of the NBR said investment of undisclosed money requires paying above 27-per cent tax in the current FY which was a 10-per cent flat rate last fiscal.
"Such high rate of tax discouraged people from availing the scheme. We cannot expect a response like in the last FY on this opportunity," he said.
The NBR received a record response from a total of 11,859 people last year to its money-legalizing scheme. Some Tk 206 billion was whitened under that blanket opportunity last year -- the highest amount of undisclosed money disclosed since Bangladesh's independence.
The government exchequer received taxes worth Tk 20 billion against the disclosures.
In the period between 2005-06 and 2019-20, a total of Tk 145.95 billion worth of undisclosed income had been formalized under such opportunities.
The official said the government tightened the measures this time "to ensure justice to the honest taxpayers".
On poor response on the share market, former Managing Director of Dhaka Stock Exchange KAM Mazedur Rahman says the investment of 'black money' in shares was never that high as the scheme is meant for individual investors.
Large transactions on the share market are usually conducted by institutional investors, he adds.
The capital market remained vibrant due to poor credit growth, the limited scope of investment, low rates of bank interest and lack of sufficient alternative investment opportunities, he noted, indicating the recent bull runoff the bourses.
"From DSE, we never officially proposed incorporating black money- whitening opportunity into the budget," he said.
The impact of black money was never significant on the capital market that may account for less than 1.0 per cent of daily turnover, he added.
Section '19AAAA' of the law, regarding special tax treatment in respect of investment in securities, allows undisclosed income insecurities.
Under the current FY provision, the highest tax rate of 25 per cent along with 5. 0 per cent penal tax will have to be paid on the computed amount of taxes for the investment of undisclosed money in the capital market.
However, the securities investors are required to pay the tax within 30 days of such investment. As per the Finance Act 2021, no authority will raise any question about sources of the tainted money if it is disclosed under the scheme.
In case of withdrawal from the capital market within one year of investment, starting from the day of such investment, an additional amount of penalty at a rate of 10 per cent on the withdrawn amount will be payable at the time of assessing the tax files.
Professor Dr Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue (CPD), however, suggests the government should lay focus on enforcement of the law, thwart tax evasion, digitisation and integration with the other authorities to mobilise revenue instead of offering money- whitening scope.
"Such opportunity does not help the government to collect higher taxes as only Tk 20 billion was collected as taxes against the scheme out of the total tax-revenue collection of above Tk 2.50 trillion last FY," he added.
It is not morally acceptable and it shows that stringent provision did not attract undisclosed-money holders, he added.
The government should invest in NBR as returns of investment would be higher than any other sector, he added.
He also suggests conducting forensic investigation, making the transfer-pricing cell active and exchange of data through automated systems with other entities.
In the current Finance Act, the government has amended few original provisions of last FY's black money-whitening opportunities and continued the mechanism in harder terms.
Last year, the tax authority allowed taxpayers to declare the undisclosed money with only 10-per cent flat rate of tax without facing any question on source of the money.
Under the provision 19AAAAA, the special tax treatment in respect of undisclosed property, cash etc allows declaring the undisclosed movable and immovable property by paying tax at a rate prescribed by the income tax authority, and with 5.0-per cent penalty.
However, investors in new industrial undertakings would enjoy a flat rate of tax at 10 per cent to get their income washed white.
In the Income Tax Ordinance 1984, there is a permanent provision on voluntary disclosure of income by paying 10-per cent penal tax in addition to the normal rate of tax.
Investors in hi-tech parks and economic zones would also enjoy a 10-per cent flat rate of tax for their income to be legalized until June 30, 2024.