Opportunity to convert black money into white money, for whose benefit?

Finance Minister Abul Hasan Mahmud Ali has presented a budget proposal for the upcoming fiscal year (2024-2025) with a total size of 7 lakh 97 thousand crore taka. Of this, revenue is 5 lakh 41 thousand crore taka, and the expenditure is 2 lakh 56 thousand crore taka. This means there will be a deficit of 2 lakh 56 thousand crore taka in the budget. To cover the budget deficit, loans totaling 2 lakh 51 thousand 6oo crore Taka will be obtained from various domestic and foreign sources. Of this, 90 thousand 700 crore Taka will come from foreign loans. Additionally, it is expected that 4 thousand 400 crore Taka will be received as grants to help cover the budget deficit. Due to the failure to collect the desired level of revenue from domestic sources, Bangladesh is increasingly becoming dependent on foreign loans. Currently, Bangladesh's tax-to-GDP ratio is 7.6%, which is the lowest among South Asian countries.

The amount of loans taken by the government from both domestic and foreign sources has risen to nearly 40% of the total GDP, which is approaching a dangerous level. Over the past five years, the amount of loans taken from domestic sources has doubled. In the fiscal year 2019-2020, the amount of loans taken by the government from domestic sources was 78 thousand 745 crore Taka. In the fiscal year 2013-2014, a substantial amount of foreign exchange was spent on servicing both the interest and installments of foreign loans, totaling 129 crore US dollars. By the fiscal year 2022-2023, this amount had more than doubled, reaching 268 crore US dollars. The proposed budget estimates a GDP growth rate of 6.50% and an inflation rate of 6.75%.

The proposed budget is quite conventional, lacking significant novelty. Hence, there hasn't been much reaction from relevant quarters. However, it has sparked extensive discussions among economists and relevant stakeholders. The budget has provided an undisclosed opportunity for converting black money into white money by offering a tax amnesty scheme, allowing a 15% tax payment option. Many find the issue surprising, even though such opportunities have been offered repeatedly in the past. However, the lack of discussion on providing the opportunity to convert black money into white money stands out this time. Recent allegations of corruption and irregularities against the former police chief in the country have stirred up a storm, contributing to the debate on offering the opportunity to launder black money.

The issue of offering the opportunity to convert black money into white money is indeed a matter of economic perspective. Many tend to use the terms "black money" and "undeclared or unreported money" interchangeably, but they are not entirely synonymous. Both black money and undeclared or unreported money are considered illegal from a legal perspective. Undeclared or unreported money can be considered a form of black money as well. However, there is no opportunity for measuring black money and undeclared or unreported money on the same scale. Undeclared or unreported money refers to income or funds that are earned legally but remain outside the purview of the tax network. It essentially comprises the portion of one's legitimate earnings that is not disclosed to tax authorities. On the other hand, black money is money or income obtained through illegal activities and remains outside the tax network. For example, if an individual or entity earns 10 crore BDT through legitimate means in a year, and they declare 5 crore BDT of that income on their tax return while concealing the remaining 5 crore BDT, then the undisclosed 5 crore BDT would be considered undeclared or unreported money. If an individual or entity earns 10 crore BDT through theft, robbery, or any other illegal means in a year, and they do not declare that income on their tax return, then this money would be considered black money. Due to the constraints of the prevailing laws in the country, there is no opportunity to declare income earned through illegal activities within the tax network. Owners of black money engage in two offenses simultaneously: they earn money illegally and keep it outside the country's existing tax network. And owners of undeclared or unreported money keep their legally earned income outside the tax network. They commit an offense by keeping their legally earned income outside the tax network.

Owners of black money or undeclared/unreported money will certainly not keep their earned income idle. Moreover, they cannot use it through regular channels. Therefore, in this scenario, they resort to money laundering. Those involved in black money or undeclared/unreported money, along with those engaged in money laundering, never disclose their earnings or the amount of money to anyone. It's impossible for any individual or organization to provide accurate statistics on the amount of black money generated in a country or globally each year and the extent of legitimization through money laundering. Only estimations based on certain assumptions and data can be presented.

Previously, it was believed that economic smuggling was only a problem for poor and developing countries, while financially stable nations were free from this issue. However, recent research and available statistics suggest that economic smuggling is relatively lower in developed countries compared to less developed or impoverished nations. There is no country in the world that is completely free from smuggling and money laundering. Some countries even openly encourage smuggling. For example, Malaysia encourages smuggling through projects like the "Second Home" program, where individuals are granted citizenship in exchange for a certain amount of investment or bringing in cash into the country. Canada offers excellent opportunities for foreign investment from smuggled money. Two years ago, Turkey launched the Second Home project, and at least 200 Bangladeshis have applied at the primary stage. If the countries involved are not sincere, controlling economic smuggling is practically impossible. Controlling money smuggling is only possible if the destination country takes a strict stance on this issue. The most damaging aspect of smuggling is that the money that could have been used for the development of the home country is being spent on the development of other countries.

The recent economic development of Bangladesh is being viewed as a role model for developing countries. While Bangladesh has achieved remarkable progress in the economic sector, it has also been observed that economic mismanagement is occurring in an unprecedented manner. It's not just Benazir Ahmed who has set a record in corruption, but thousands of others like him can be found directly involved in corruption in the country. The proposed budget includes provisions for whitening black money by paying a 15% tax. A Member of Parliament has demanded even lower tax rates for this whitening opportunity. Indeed, our country is full of surprises! Those who take a stance against corruption seem to be speaking in favor of corrupt individuals.

However, even with the opportunity to whiten black money, there will be no benefit. Those who acquire black money through corruption are very powerful and always have political backing. Therefore, taking action against them is nearly impossible. If corruption is not curbed, the presence of black money will persist. And if black money exists, efforts to legalize it will also remain unabated. According to available information, the opportunity to whiten black money was first provided in the national budget of the fiscal year 1977-1978. At that time, 78 crore taka was whitened. Then, in the fiscal year 1989-1990, black money worth 850 crore taka was whitened. In the fiscal year 2000-2001, black money worth 1,000 crore taka was whitened. In the fiscal year 2005-2006, black money worth 4,403 crore taka was whitened. In the fiscal year 2007-2008, during the tenure of the military-backed caretaker government, 9,683 crore taka was whitened. In the fiscal year 2009-2010, 1,213 crore taka was whitened. Among these, the highest amount of black money was whitened in the fiscal year 2020-2021, which amounted to 20,600 crore taka. Despite numerous opportunities provided over the years, very few owners of black money have availed themselves of this opportunity.

Offering black money owners the opportunity to whiten their funds with lower taxes compared to those paid by legitimate taxpayers is in no way morally acceptable. Such actions essentially penalize legitimate taxpayers. Not only that, but they also incentivize legitimate taxpayers to engage in generating black money. Therefore, the proposal in the budget to whiten black money may need to be reconsidered. Simultaneously, a comprehensive campaign must be initiated against owners of black money. Organizations responsible for controlling corruption must be compelled to uphold integrity and accountability to ensure effective control over corruption. Owners of black money are enemies of the nation and society. No leniency should be shown towards them. Declaring the creation of black money as a criminal offense, effective measures must be taken against them.

Author: Retired General Manager, Bangladesh Development Bank PLC and Writer on Economics