Home ›› 21 Nov 2021 ›› Opinion
Frankly speaking, Bangladesh has long been struggling to increase income from tax revenue. Bangladesh economy cannot afford to lose out on taxable income as media reports suggest that the size of the shadow economy is growing. The reluctance of wealthy people in submission of income tax returns is conspicuous. The fact is that all Taxpayer’s Identification Number (TIN) holders do not file income tax returns properly. According to newspaper reports, out of five (5) million TIN holders, not more than 2.5 million files tax returns. In order to get about three dozen services, TIN is a must. However, bringing all TIN holders under the umbrella of tax net is apparently an arduous task.
Under the initiative of National Board of Revenue (NBR), the income tax fair is being held every year since 2010. However, in in 2020 and also this year the fair could not be held because of the Covid-19 pandemic. The fair is meant to encourage people in respect of submitting income tax returns, but is unfortunately failing to generate expected level of tax revenue earnings. It is important to note that the tax dodgers wait to enjoy government- provided facilities in the budget, which even encourages the honest tax payers to avoid submitting tax returns on a regular basis. With the aim of legalising black money circulated in economy, the government has taken a number of steps. But, the efforts made by the government to whiten black money have largely foundered. According to media report, the government has so far given as many as sixteen opportunities to whiten undisclosed money. What is worrying that a total of Tk 16,000 crore have so far been disclosed as white money in the last 45 years, out of which a total of Tk 1,500 crore has been earned as revenue.
The amendment of finance act came recently following the alarming growth is the size of informal economy. The current finance act has offered money whitening opportunities. 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 normal rate of tax. A business daily said that the NBR received response from a total of 11,859 people last year to its money–legalising scheme. Around Tk 206 billion was whitened under this blanket opportunity last year the report noted. In the period between 2005-06 and 2019-20, a total of Tk 145.95 billion worth of undisclosed income came in focus under such opportunities.
The Swiss National Bank (SNB)-the central bank of Switzerland-has become the known place to park the illegally earned money by Bangladeshi-born citizens. The annual report of SNB also said around $426 crore in 2005, $337 crore in 2006, $409 crore in 2007, $644 crore in 2008, $510 crore in 2009, $540 crore in 2010, $592 crore in 2011, $722 crore in 2012 was deposited to Swiss Bank received from Bangladeshi-origin people. In 2019, total amount in Swiss Bank stood at Tk 5,427 crore belonging to people of Bangladesh. “On an average around Tk 60,000 crore is being illegally flown abroad yearly from Bangladesh” the US based Global Financial Integrity Report stated. One of the reasons behind the unfulfillment of NBR revenue earnings target is also the outflow of money from Bangladesh. If laundered money can be brought back in Bangladesh, tax to GDP ratio will certainly rise.
Bangladesh tax to GDP ratio not recording more than 8.0 per cent indicates that Bangladesh lags far behind South Asian countries. With this poor level of tax to GDP ratio, it would be tough to manage unexpected economic shocks like coronavirus pandemic in the future. Despite relaxing tax collection methods offered by the government, expected amount of taxable income still remains a dream. The FY 2021-2022 budget came as blessings for the black money and assets holders. The people, who are fond of living in shadow economy, got the opportunity of legalizing undisclosed money or wealth in the last couple of fiscal years. But, NBR vision was not materialized despite opening the door for the people who are untaxed through amending tax related provisions. Black money or undisclosed income can be whitened or declared by way of investing it in financial assets, real estate and industry. The blanket provision of whitening the black money by paying 10.0 per cent flat tax ended on June 30 this year. New scope with penalty will be effective from July 01, the first day of the new fiscal year 2021-22 (FY22), until the last day or June 30, 2022- . The share of shadow economy in Bangladesh’s GDP is alarming. The shadow economy is also known as the hidden economy, the parallel economy, and the informal economy.
A working paper of the International Monetary Fund (IMF), published in 2017, also showed that the average size of the shadow economy of the 158 countries over 1991 to 2015 is 31.9 per cent. It also showed that Bangladesh is listed among 31 countries where the average ratio of the shadow economy is more than 30 per cent of GDP. A media outlet reported that the estimated amount of black money in Bangladesh stood at Tk 10.18 trillion in the immediate past fiscal year (FY21). The size of black economy is around 33 per cent of the country’s nominal Gross Domestic Product (GDP) or GDP at the market price, the report noted. A working paper of the International Monetary Fund (IMF), prepared by Leandro Medina and Friedrich Schneider, showed that the size of shadow or black economy in Bangladesh increased by more than three times in 25 years but its ratio to Gross Domestic Product (GDP) declined. According to the estimation, the ratio of shadow economy came down to 27.60 per cent of the country’s annual GDP in 2015 which was 36.65 per cent in 2003. The size of black economy thus stood at around US $58 billion or at least Tk 4532.71 billion in 2015. According to a study, in FY19, the amount of black money in Bangladesh was Tk 8.40 trillion when GDP at market price stood at Tk 25.42 trillion. Real GDP or GDP at the constant price in FY19 was Tk 11.05 trillion. Thus, it may be said that the size of black money stood at Tk 9.22 trillion in FY20 and Tk 10.18 trillion in FY21. The government should seriously heighten its focus on controlling black economy or shadow economy. Though the 7th FYP stated that the so-called “Black Money” is circulating in the domestic economy, the 8th FYP did not take the issue so seriously.
If black economy continues to receive cursory attention, it will be a drag on achieving targeted tax to GDP ratio set in the 8th FYP. How future economic shocks would be tackled with existing tax revenue income is absolutely unclear to me. Bangladesh is on the right track to achieving a number of milestones ahead. The frightening size of black economy must not be allowed to put our country off the track. Onus is on the shoulder of the government to reduce the alarming size of black economy.
The writer is an economic affairs analyst. He can be contacted at [email protected]
