The Finance Bill 2020 gives holders of the so-called undisclosed income the privilege of legalising their money by paying a nominal tax of 10 per cent. Although it has a ring of recovering some unearned incomes, this may well have served as a disincentive to the genuine taxpayers who paid between 15 and 25 per cent tax on their incomes annually in compliance with the rules. No wonder, there is an issue of tax evasion, too.
However, wooing possessors of ill-gotten wealth to whiten their money through paying some amount of fine has been going on for long. Obviously such leniency towards the possessors of black money has been shown in the belief that it could encourage them to invest in the economy as well as increase the government's revenue earning substantially. Ironically, so far undisclosed money owners' response to such offers from the successive governments cannot be said to have been enthusiastic.
The introduction of the Finance Bill 2020 has simplified the procedure, hopefully, to elicit better response from the owners of unearned wealth. The record collection of over Tk 9.50 billion by the National Board of Revenue (NBR) in the first half of FY 21 from the holders of hidden income might give one the impression that the this latest provision has been successful in drawing a marked response from them. But it might also be that the record collection this time has to do with pandemic-induced communication disruptions that came in the way of laundering the money abroad. Whatever may be the reason, question still remains: Has the policy, as some claim, helped expand the government's tax-net as expected and thus improved the tax-GDP ratio to reach anywhere near 18 per cent by 2020 as envisaged in the 7th five-year (2016-20) plan? Or will the black money thus whitened be invested productively in the economy to create employment? These questions are germane to the rationale of the government's stand on legitimising unearned income. If past experience is any indicator, never have the holders of black money turned into good taxpayers and thereby contributed to widening the government's tax net. As for the revenue-GDP ratio, it was estimated at 11.9 per cent in FY(2020-21), less than the 12.4 per cent achieved in lockdown-affected FY (2019-20). Black-money whitening provision seems to have left little impact on the existing revenue income situation.
Popular perception, on the other hand, is that the ill-gotten money so legalised usually ends up in the non-productive sectors like the real estate, capital market, or in financing election campaign. It is common knowledge that such investments are apt to escalate market value of assets rapidly to create inflationary bubble in the economy followed by sudden crash. Past capital market crashes are a case in point. The fallouts from such developments are for all to see: an increase in social ills like poverty, widening of income disparity, erosion of values, rise in social crimes and violence, to name but a few. Rewarding the culture of illicit earning through various types of corruption including graft, bribery, embezzling of public funds, misinvoicing of trade and extortionist activities in effect contravenes with the rule of law and norms of distributive justice. In sum, legalising is no answer to the evil practice of creating black (illegally earned) or grey (legally earned but untaxed) money. For, it creates more problems than it solves in the end. In fact the 'remedy' cannot be worse than the problem.