Monday, 5 June, 2023

Amnesty for laundered money may go in FY24

Tax net to be expanded into rural areas

The tax amnesty scheme introduced in the current fiscal year's budget to legalise undisclosed money earned abroad may be lifted in the upcoming fiscal year, following its failure to generate the expected results and criticism from economists, sources at the National Board of Revenue (NBR) said. 

The strategy aimed to recover laundered funds by allowing them to be legalised with a mere 7 percent tax, but has failed to yield the expected results.

Simultaneously, wealthy individuals might face higher surcharges, a move designed to generate more revenue following recommendations from the International Monetary Fund (IMF). Moreover, to broaden the tax net, plans are underway to appoint private agents in rural areas.

Protection for local industries may continue as part of the government’s ‘Made in Bangladesh’ campaign. 

In the current fiscal’s budget, the government announced that overseas undisclosed money can be legalised paying only 7 percent tax without any question with a hope to reclaim the laundered money, but it failed to yield any result.

Immediately after the announcement of the facility, economists, politicians and civil society members criticised the move and said it is “unethical” and would discourage honest taxpayers.

Despite widespread criticism, Finance Minister AHM Mustafa Kamal at a post-budget press conference defended the move saying that people have the “rights” over the laundered money.

The Finance Bill 2022 also mandated the disclosure of undisclosed money in income tax returns, penalizing non-compliance with a fine equal to the undisclosed amount.

NBR sources said apart from the offshore tax amnesty, the return submission provision for undisclosed money will be withdrawn in the next fiscal year. 

“The honest taxpayers have been discouraged with this type of discriminatory policy. People from every segment said that the laundered money won’t return the country even after the facility,” former lead economist at the World Bank Dr Zahid Hussain said.      NBR officials expressed embarrassment over the fact that no laundered money had returned to the country even after 10 months since the facility was announced. They questioned why individuals would choose to legalize their money by paying a 7 percent tax when they had the option to legalize it through remittance with a 2 percent cash incentive.

In light of the IMF's prescription to increase revenues, the NBR is considering raising the surcharge on wealthy individuals by 5-10 percent. Currently, the surcharge ranges from 10 to 35 percent depending on the wealth held.

For wealth between Tk 100 million to Tk 200 million, a 20 percent surcharge will be imposed. If the wealth falls within Tk 500 million, the surcharge will be 30 percent, and for wealth exceeding Tk 500 million, a 35 percent surcharge will apply. Furthermore, individuals holding Tk 30 million to Tk 100 million, along with owning multiple cars or a residential building over 8,000 square feet, will face a 10 percent surcharge.

International Monetary Fund (IMF) has set a target for NBR to earn additional Tk 2.34 trillion revenue in the next three fiscal years, of which 2023-24 fiscal’s target is Tk 650 billion.  

“It may be proposed in the budget to logically increase surcharge. In the present context of economic reality when tax collection has become tough, cooperation from the rich is also necessary,” an NBR official said requesting anonymity, adding that the surcharge structure will also be made easier. 

The revenue target is being set 15 percent higher at Tk 5 trillion which will be GDP’s 10 percent. Of the amount, NBR’s target will be Tk 4.30 trillion, which is 16.2 percent higher than current’s fiscal’s Tk 3.7 trillion.  

As part of a move to increase tax-GDP ratio from below 8 percent, one of the lowest in the world, as per the IMF prescription, NBR eyes to appoint private tax collection agents to collect taxes from even the union level.

In a bid to promote ‘Made in Bangladesh,’ the government may curtail corporate tax by 2.5 percentage points for both listed and non-listed companies. In case of listed companies, the tax rate may be lowered to 17.5 percent and 25 percent for non-listed companies.  

Corporate tax rate for banks and mobile phone operators may remain unchanged. The NBR thinks that the initiative may encourage companies to be listed.

To offset potential revenue losses, the government may consider raising the Advance Income Tax (AIT) or increasing various types of supplementary duties on imported fridges, air conditioners, and cars.