Corruption spike fears as options ahoy in budget to legalise untaxed assets

The government has presented a number of options in the budget for 2020-21 fiscal year to legalise undisclosed income by paying certain amounts of tax amidst the COVID-19 crisis.

The move has drawn criticism from political parties that fear it will encourage corruption.

In his budget speech in parliament on Thursday, Finance Minister AHM Mustafa Kamal proposed introduction of an incentive for investment of the untaxed money by paying 10 percent tax to boost fund flow into the flagging capital market.

If an owner of undisclosed house property including land, building, flat, and apartment wants to legalise it, he or she will have to pay tax at a particular rate on per square metre of the said asset.

Taxpayers will also be able to make any disclosure of undisclosed cash, bank deposits, savings certificates, shares, bonds or any other securities on paying 10 percent taxes.

“…no other authority including the income tax authority will raise any question in this regard,” Kamal said.

In the FY 2011-12 budget there had been a similar 10 percent tax scheme for use of ‘black money’ investment in the stock market. That initiative had required a lock-in period for two years. This has been extended to three years in the newly proposed initiative.

Minister Kamal pointed to the crisis caused by the coronavirus epidemic, the possibility of a global economic recession, and changing economic circumstances as the factors that drove the decision.

“To face these challenges, we have to formulate and implement our financial policies for the upcoming fiscal year with utmost prudence and foresight,” he said.

“On the one hand, we need to generate more revenue to finance greater public spending to stimulate demand in the economy, and on the other hand, we need to provide impetus to the economic activities in the private sector. Extraordinary times demand extraordinary measures. “

Kamal excused the tax incentives as an opportunity for taxpayers to “amend mistakes” made due to “lack of adequate knowledge on tax return submission”.

The finance minister also proposed a new section to the Income Tax Ordinance to curb money laundering and tax evasion through under-invoicing, over-invoicing and declaration of false investments.

“According to the proposed provision, 50 percent tax will be levied on the proven amount of over- or under-invoicing, or on the proven amount of false declaration of investment,” the minister said. “I hope that the proposed provisions will be highly effective in curbing money laundering and tax evasion caused through acts of under-invoicing, over-invoicing, and false declaration of investment.”

Senior BNP leader Abdul Moyeen Khan, however, said such options had not benefitted the economy in the past.

He demanded confiscation of such illegal assets and investment of those in healthcare of coronavirus patients.

Another BNP leader, Amir Khosru Mahmud Chowdhury said he sees efforts to “continue corruption” in the proposals to legalise untaxed income.

Keeping so many options to legalise the undisclosed assets will encourage “the trend of plundering” in Bangladesh’s economy, said the Communist Party of Bangladesh or CPB.

Leaders of the Workers Part, Jatiya Samajtantrik Dal and Bangladesher Samajtantrik Dal also criticised the move.