Article 20 (2) of the Constitution of Bangladesh states, “The State shall endeavor to create a situation where, as a general rule, no person shall be able to enjoy unearned income, and where intellectual and physical labor of all kinds will become the fullest expression of creative endeavor and human personality.”
In the English interpretation of the Constitution, unearned income is termed as unearned income. The reason for quoting this constitutional clause is that the Finance Minister has recently
directly violated the Constitution by saying, “As long as there is undisclosed income, there will be a system to whitewash it in the budget .” Every minister, starting from the President and the Prime Minister of the government, has taken an oath to uphold the constitution of the country while assuming office. Therefore, it is their constitutional duty to ensure that no person can enjoy ‘unearned income’. There is no term or word ‘undisclosed income’ in the constitution, it has been added to the Income Tax Ordinance of 1984. The term is completely unconstitutional, which the then government has used to alleviate the problem of unearned income.
The unearned income described in the constitution means black money, which is being whitewashed with only 10 percent tax, and the government’s policy makers are committing serious wrongdoings in violation of the constitution. In this issue of The Daily Star on May 4 National Board of Revenue (NBR) chairman Nasiruddin Ahmed retired in an opinion column “In-X-suda Black Money ligalaijada certain that the matter had been disclosed, the top leadership of the government, which should be considered with due importance I think so. Because, these are deliberate statements of a former NBR chairman. (I got Nasiruddin as a student in the economics department of Chittagong University.)
He calculated that since the independence of Bangladesh, a total of Tk 30,624 crore of undisclosed income has turned into ‘exhibited income’ using the government-provided facility of laundering black money and the government has collected Tk 3,900 crore in tax revenue. But no other year except this year has shown too much undisclosed income. He opined that if undisclosed income is invested in certain sectors in the current financial year, no question will be asked from any government body about the source of income. He says the country’s constitution does not allow for the display of such unearned income. Such unearned income stems from tax evasion, money laundering and informal economy (corruption).
According to the Constitution of the country, the income which has been termed as undisclosed income in the Income Tax Ordinance of 1984 must be the income earned from a valid source. Thus, income derived from illicit sources (unearned income) is not eligible to be included in self-motivated income. Since illicit income arises from various illegal activities, there is no ‘constitutional opportunity’ to convert it into legitimate income (earned income) by paying taxes. No government authority can question the source of income displayed আ this government declaration also has no constitutional validity; Because, the constitution of the country has not made any provision to convert illegal income or unearned income into legal income.
Nasiruddin shows in his table that in the July-March period of the fiscal year 2020-21 alone, the illegal income of Tk 14,200 crore has turned into the income shown by paying 10 per cent tax, which is a big leap. He says that giving the opportunity to convert unearned income into legal income with just 10 per cent tax is tantamount to giving unjust and unjust taxpayers illegal benefits as it is extremely discriminatory against honest taxpayers. He thinks that the government does not get much benefit from this benefit as it creates very low ‘tax-willingness’ tax compliance. On the contrary, it gives the wrong message to the society from the side of the government and creates a bad impression of the international community about the governance of the country.
Nasiruddin has shown that section 19 (e) of the Income-tax Ordinance, 1974, provides for self-motivated display of undisclosed income through the facility of ‘paying 10 per cent penalty with payment of tax at the applicable rate’. In India, the 2018 Illegal Money Declaration Scheme provides for the legalization of illicit money with 49.90 per cent ‘taxes, surcharges and fines’. Thus, the current system of legalizing illegal income in Bangladesh by paying only 10 percent tax is neither ethical nor legal, it is a direct violation of the Income Tax Ordinance 1974. Nasir also made some recommendations for timely reform of the Income-tax Ordinance of 1974, the details of which are unnecessary in this column.
I firmly believe that the main reason for Bangladesh’s tax-to-GDP ratio still remaining below 10 percent is the government’s relentless failure to collect adequate income tax. And the main reason for this failure is to keep this unconstitutional budget system of the government to whiten the black money every year with the intention of keeping the corrupt illegal income (unearned income) out of the tax net. Bangladesh has the lowest tax-to-GDP ratio in South Asia. Giving such direct government patronage to the corruption of the economy and politics is a direct proof of the corruption of the top leadership of this government, ‘Zero Tolerance’ towards corruption is just a political talk. The governments of the world which have abandoned such corrupt politics and jumped into the fray with all their might to establish a truly people-friendly system of governance, are increasingly being able to set an excellent example in the race for development.
I firmly believe that in order to make income tax the main source of tax revenue for the government, the current policy of patronizing black money through the system of whitewashing undisclosed income must be abandoned by the government. If the owner of black money is able to legalize his illegal income by paying only 10 percent tax, then it is foolish to become an honest taxpayer and pay 15-20-25 percent income tax! If a certificate of legal validity can be obtained for the entire illegal income by paying 10 per cent tax for a small portion of black money, then how will the government stop it if it keeps building black money mountains year after year by keeping those documents with it?
How many of the hundreds of millionaires who have been born in Bangladesh pay income tax of more than one crore rupees? The owner of ‘Hakim Zardar’ has been the highest income tax payer in the country for years. The names of 255 rich businessmen (owners of at least মিল 30 million or Rs 255 crore) have come up in the Wealth-X study, but their names cannot be found! The owners of these black money were the main smugglers of capital from the country. If the government thinks that the money laundering system is causing the tide of investment in the country, then it will be a fatal mistake. If the government can establish income tax as the main source of government revenue by building all-out resistance against corruption instead of fostering corruption, the government will be freed from the vicious cycle of dangerous dependence on internal debt to meet the growing government revenue deficit every year.
l Moinul Islam Economist and Retired Professor, Department of Economics, University of Chittagong