Assignment On

Black Money of Bangladesh Economy

Course title: Financial LAW Course code: BBA-101102

Submitted to:
Nasrin Jahan Lecturer Dept. of Financial Management Asian University of Bangladesh.

Submitted by:
Name ID No Batch Program Section Semester Campus : Md. Rasel Rana : 201010115 : 38th : BBA :B : Summer-2012 : Uttara

Date of submission: 22.07.2012

Definition

Black Money of Bangladesh Economy

Muhammad Abdul BasetThe issue of black money has been whipping up strong debates frequently in recent years. This is quite natural, given the fact that the size of the black money is huge and the holders of the same do dominate politics and business. Definition of Black Money: The term 'black money' is illegal earnings that mean money earned unofficially or illegally. 'Black money' is the income, as from illegal activities that are not reported to the government for tax purposes. So black money is the money which is not involved in paying tax imposed by the government. The biggest corruption sector in Third World developing countries is money laundering derived from cheating, smuggling, trafficking, and innumerable methods of graft into proceeds traditionally called black money or informal trade. So we can say that the money which has no legal source of income, which are not specified and not disclosed to the government and not involved in paying tax, is known as black money. Size of Black Money in Bangladesh: In a post-budget press conference the finance minister said the amount of black money is anywhere between 45 per cent and 81 per cent of the gross domestic product (GDP) in Bangladesh. The finance ministry official said the minister quoted the amount from the analysis report. The report said about 45 per cent to 81 per cent of the country's economy was underground in 2010. It said when a big portion of the economy remains outside formal economy, it creates 'asset bubble' and it may have a negative impact on macro-economy. New study by the finance ministry finding that undeclared income or "black money" could account for up to 80 per cent of gross domestic product -- some $110 billion at present.

Black money culture in Bangladesh

Black money holders are controlling the economy of Bangladesh. Of the thousands of crores of black money flooding the economy the army-backed governments anti-corruption drive is not too strong compared to the strength of black money. The most conservative estimate that puts the current total of black money at Tk 50,000 to 60,000 crore or one-fifth of the GDP, which Bangladesh Economic Association figures is no less than Tk 175,000 crore. Bribery, corruption, smuggling and manipulations in import are generating the black money. The larger chunk of black money is transferred abroad and only a little goes into the fixed deposits, while the black money owners spend the rest on posh living. This is most evident, they say, from the fact that in 30 months to June last, the total amount of fixed deposits a common destination of black money grew by Tk 14,735 crore to Tk 43,612 crore from Tk 28,877 crore in December 2001, according to Bangladesh Bank (BB) statistics. Black money makes no positive contribution to the economy. It plays no positive role in employment generation, production or any other sector. On the contrary, it has a severe impact on inflation that affects the poor. The unlimited expenditure of black money owners also leads to higher import and increase in commodity prices.

Black money 'too tough to control' in Bangladesh

Bangladesh's Finance minister and the Finance secretary yesterday blamed the democratic system of government for the compromise over whitening black money (untaxed money) that is too tough to control. They made the observation at a pre-budget discussion with the Economic Reporters' Forum (ERF) at the finance ministry in the capital. "The democratic government is proficient in the art of compromise, Finance Minister AMA Muhith said on giving the chance to whiten black money by successive governments. He said a chance was given to whiten black money in the first year of this government. In the following year, it was stopped but allowed again in the stockmarket in the third year. "I do not know what will happen this year, he said. Black money becomes a topic of debate almost every year before the announcement of the national budget. The Bangladesh Nationalist Partyled governments from 1991 to 1996 and from 2001 to 2006 also legalised black money. Surprisingly, Muhith pinned the blame on foreign currency earners for generation of black money, without considering bribery and corruption that are believed to be its major sources. But the minister did not explain how remittances generate black money. Finance Secretary Mohammad Tareque said there is no economy without black money in the world, and profiteering by individuals generates black money. "It (black money) will be there in capitalism, he said. India has long been trying to control black money, but has not succeeded yet, said the secretary.

In his introductory speech, Muhith said the upcoming budget for fiscal 2012-13 would be around 190,000 crore taka, of which 54,000 crore taka is meant for development programmes. (One crore is equivalent to 1,000,000.) The minister said the budget is likely to be tabled in parliament on June 7 and to be approved on June 28. He said containment of inflation and bank borrowing would remain as two major challenges in the coming year. Muhith said he is optimistic about attaining GDP growth target of 7 per cent. He also said that Bangladesh's budget deficit remains within the limit. Muhith said multi-level marketing has been in operation in many countries across the globe for the last 30 years, but it requires special laws. "The problem with MLM here is, it gets involved in banking operations cashing in on loopholes of cooperative laws. The minister said initiatives will be taken to change cooperative laws. ERF President Khawza Mainuddin and General Secretary Abdur Rahim Harmachi also spoke at the discussion. Ignoring all urges and arguments, finance minister AMA Muhit makes the provision to legalise undisclosed incomes more flexible. The budget for the next fiscal year (FY13) provides an opportunity to bring almost all previous undisclosed incomes under the tax net. The provision is popularly dubbed as whitening the black money. Interestingly, in his 150 plus pages budget speech, Muhit doesn't mention even a single word regarding the provision but skillfully keeps it in the finance bill. So, at first it is not possible for anyone to understand that such a tax scheme is there. And as the finance bill is written in legal-technical term, it is also very difficult for most people to understand the meaning of any provision.

In brief, the provision provides a scope to legalise previously undisclosed income by allowing a person to pay applicable income taxes along with a 10 percent penalty. The rate of penalty is 10 percent of tax proportionate to such income. For instance, if somebody wants to legalise Tk 15 lakh he earned five years back, but didn't show in his income tax return, first the applicable income tax for that income has to be determined. Then a 10 percent penalty will be imposed on the tax. In this case, if the person's income tax, according to taxslabs, is Tk 3 lakh, he has to pay an additional Tk 30,000 as penalty. The actual calculation is, however, more complicated. Whatever the method of calculation may be, the main question is necessity and rationale for such room to legalise the undisclosed money. The arguments placed by finance minister as well as the government to justify the measure are highly misleading and ill-conceived. Moreover, if the finance minister believes that such a measure is right and valid, why does he skip it in his budget speech?

In his post-budget press briefing, the finance minister claims that such a measure would bring investment and prevent cash from going out of the country. He also states that the amount of undisclosed money in the economy is something between 41 and 82 percent of the country's gross domestic product (GDP). In his language, We have given scope to bring the undisclosed money to the market because we want the undisclosed money invested in the economy. We want to utilise the money.'

Such claims actually reflect an inadequate understanding of the nature of black money. The mentioned estimate of black money in the country is also very misguiding. The huge range from 41 to 82 percent itself is enough to illustrate that the figure is untrustworthy. How can a responsible finance minister depend on such a figure? No doubt that estimating the amount of black money is very difficult. But, before doing so, one has to have a clear conception of black money and the nature of its holding. To be precise, black money is actually earnings that evade applicable tax no matter whether the earnings are legal or illegal. Actually, incomes that originate from illegal activities (i.e. smuggling) and practices of corruption (i.e. bribe) have no valid reason to come under the tax net. Such incomes are by nature meant to dodge tax. On the other hand, incomes from approved activities are subject to tax. When anyone keeps any such income undisclosed to tax authority, it becomes undisclosed or black. For instance, when a physician doesn't show his/her full earnings, originated from private practices, in his/her income tax return, the said amount actually turns into black money. Such income is not illegal as he/she has government approval for private practice. So, despite having a legal source of income, any one can make his/her income undisclosed or black by evading due taxes.