Black money has been dominating the South Asian economies since the colonial era. Its causes and sources are varied, including drug trafficking, smuggling, gambling, and corruption. A 2018 study by IMF estimated the size of black, shadow or underground economy in Bangladesh to be over 30 percent of GDP, the average for the period 1991-2015 being 33.59 percent. In contrast, a study on the underground economy commissioned in 2013 by the Government of Bangladesh found the proportion of black economy rising from 7 percent of nominal GDP in 1973 to 62.75 percent in 2010. However, the IMF study had incorporated mostly legal economic pursuits and tried to overlook illegal or criminal ones like prostitution or gambling, as well as 'do-it-yourself' and household activities.
The black or underground economy is also termed as the hidden, shadow, grey, cash, unofficial, informal and undisclosed economy. According to the IMF, it includes all economic activities that are hidden from official authorities for monetary, regulatory and institutional reasons. The monetary reasons include evading tax payments and social security contributions; the regulatory reasons include avoiding government officials or the weight of regulatory framework; and the institutional reasons include laxity in enforcement of anti-corruption law, poor quality of political institutions and fragility of rule of law. Black economy results in tax distortions as well as erroneous measurement of macroeconomic variables, and official policies based on these erroneous measurements do not bring desired results. It exacerbates poverty cum inequality in a country, and the quality of public goods and services are adversely affected.
In this backdrop, unprecedented incentives were offered to the holders of black money in Bangladesh for whitening those under the budget for 2020-21. As stated by the finance minister in his budget speech: "Regardless of the provisions of any other prevailing law of the land, individual taxpayers will be allowed to disclose any type of undisclosed house property including land, building, flat, and apartment between July 1, 2020 and June 30, 2021 on paying tax at a particular rate on per square metre of the said asset. Individual taxpayers will also be able to make any disclosure of undisclosed cash, bank deposits, savings certificates (Sanchayapatra), shares, bonds or any other securities between 1st July 2020 and 30th June 2021 on paying taxes at a rate of 10 percent on the value of the said declaration; and no authority including the income tax authority can raise any question on such declarations".
The National Board of Revenue (NBR) has recently announced that Taka 102.20 billion worth of undisclosed incomes have been legalised by 7,650 tax-payers during July-December 2020, yielding tax revenue of about Taka 9.50 billion. Observers were surprised by these figures, as there has been no such precedence of whitening such a huge amount in the past, although opportunities for whitening on a limited scale have been offered for a total of sixteen times since 1975, including eight times by the present government since 2012-13. Only the whitening of about Taka 100 billion by 32 thousand individuals during the two years of the last caretaker government (2007-08) came close to that figure.
Experts pinpoint two specific reasons behind the recent surge in the whitening of black money. The first one is that, the Anti Corruption Commission or any other governmental agency cannot now question the source of undisclosed money after its whitening, which is a kind of blanket amnesty. Secondly, although previous whitening provisions entailed payment of additional 10 percent tax after deposit of regular taxes against undisclosed assets, the new rule required payment of only 10 percent tax in total against the whole amount. Moreover, besides the provision for whitening land, flats and houses, even undisclosed bank deposits, savings certificates, shares and bonds could be legalised. But this implies that those who maintained regularity in payment of taxes had to pay more compared to the defaulters or evaders who had not paid due taxes earlier. It clearly violates the principles of fairness and efficiency in taxation, and should therefore be immediately stopped. Instead, the holes for earning black money should be plugged rigorously and forcefully for curbing the malaise.
Some experts also point out that the volume of whitened money may have increased as there has been lesser scope to launder money abroad during the corona-infected times because of limited international communications. Huge amounts of black money are generated through bribery, trade of banned products, under or over-invoicing in international trade, sale of land, non-disclosure of income by professionals, various projects, and bank-loan defaults. But the whitened money does not play much of a role in invigorating the economy, although the opposite has been claimed by the finance minister. This is mainly because these are not invested in the productive sectors that could generate employment.
Some observers feel that the present government has been exceedingly liberal towards the loan defaulters and black money owners. The current finance minister has also demonstrated this preference time and again as many apparently unfair and biased facilities have been extended to the loan defaulters during his two years in office. This year, he has even allowed the whitening of black money in the stock market through payment of 10 percent tax, which is undoubtedly a dangerous precedent for such a speculative arena prone to routine manipulations. Besides, many can recall the 'forest king' Osman Gani episode during the tenure of 2007-08 caretaker government. An amount of Taka 10.6 million was found inside his pillow during the anti-corruption drive conducted by that regime. Now even black money like that can be whitened for the first time in Bangladesh's history. And no authorities can ask any question about those.
The Bangladesh economy has been devastated by the Covid-19 pandemic, but the brave entrepreneurs, labourers, peasants and expatriate workers have been tirelessly striving to survive and overcome the calamity. The economy is moving forward mostly because of their relentless toils. In this backdrop, one is saddened when somebody claims that whitening of black money has invigorated the economy.
Dr Helal Uddin Ahmed is a retired Additional Secretary and former Editor of Bangladesh Quarterly.