Transcript Presentation

Political Economy of Black Money:
Undisclosed Economy, National Budget and
Resource Mobilization
www.equitybd.org
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Understanding and initiate discourse
on existing shadow economy and its
practices and implications in
Bangladesh economy
Draw recommendations to reduce the
size of black economy and
augmenting the revenue mobilization
Overview of Bangladesh Economy
a) Bangladesh is a low-income economy of South Asia
b) Bangladesh aspires to become a middle income economy by
2021 according govt. declared “Vision-2021
c) In FY 2011-12, Bangladesh had a GDP of Tk.9,14,784 crore.
Agriculture - 19.29 %
Industry - 31.26 %
Service - 49.45 %
d) GDP growth rate is about 6% and per capita GDP is US$ 818
e) National budget was tk.1,61,207 crore (17.6% of GDP and
135% of revenue mobilization) where deficit budget was
tk.41,862 crore (FY2012)
f) Annual Development Program (ADP) Tk.41,080 crore (4.5% of
GDP and 25% of national budget)
Understanding/our perception about
shadow/underground economy
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The accumulation of income which does not
figure in books of accounts
It is the aggregated of incomes which are
taxable but are not reported to the tax authority
As a result black money can not be used for
honest business transactions in the economy
It is mainly used for illegal transactions giving
raise to black market operators
Source of
Underground Economy
Illegal economic activities
Bribery, gambling, smuggling, extortion, drug dealing, black
marketing, corruption, manipulations in import, exploitation of
loopholes of laws, tax evasion, land & building registration,
extraordinary professional fee, adulterate food production and sales,
not refund the bank loan, illegal arms business, loss of govt.
companies, domestic and international tender agreement, govt.
purchase, money laundering & hundi business, terrorism activates,
housing business etc.
Legal but not reported in national accounts
Tax evasion , Tax avoidance, etc.
Scenario of Global Shadow Economy
[Source: Study by Prof. Freidrich Schneider in association with WB, July 2010]
- In Bangladesh
Year
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2007-08
% of GDP as black money
35.7%
35.5%
35.6%
35.7%
36.0%
36.7%
37%
Scenario of Global Shadow Economy
In South-Asian
Country
India
Bhutan
Mal dips
Nepal
Pakistan
Srilanka
% of GDP as
black money
23%
31.1%
32.1%
37.5%
40.1%
47%
Scenario of Global Shadow Economy
In Other Regions
Country
% of GDP as
black money
Latin and Caribbean
Sub-Sahara, Africa
Europe and Mid-Asia
South Asia
42.1%
41.3%
40.5%
34%
East-Asia and Pacific
Middle-East and North Africa
33.3%
28.5%
How the shadow economy is
creating or expanding?
 Over & under invoicing
 Weak & complicated Taxing system
 Tax exemption (EPZs , Agriculture, ITPC, tax free car import
etc)
 Corruption (bribery, tax, purchase etc) and illegal
involvement (smuggling, extortion, drug dealing, black
marketing etc)
 Large number of non-banking transactions (cash transaction
/exchange/trade)
 Not refunding of bank loan.
Forms of Black Money
Black money is kept in different forms and shapes. It is not easy to
classify them in clear language. Some common forms in which black
money is kept are,
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Bank account
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Real estate
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Stock and shares
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Savings investments
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Investment in foreign countries
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Cash, gold, jewelry etc.
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Under-values assets.
Loosing revenues due to shadow economy
(Impact)
Illegal economic activities
% of Black economy
on GDP
Bribery and Smuggling
Tk.12,000 crore
Illegal income through corruption on legal
activities.
Tk.58,000 crore
Custom duty
Tk.25,000 crore
Excise duty evasion by private banks,
insurance and industries,
Tk.16,000 crore
Income tax
Tk.7,000 crore
Export and Import duty
Tk.6,000 crore
VAT evasion
Stamp, Land and Registration
Source: Study report by Dr. Abul Barakat
Tk.500 crore
Tk.1,000 crore
Loosing revenues due to shadow economy
(Impact)……. Continue
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Illegal Investment for further benefiting
by vested group
- Political Expenditure
- Share Market and Real State
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Spreading Inequality (income, asset and
consumptions)
Factors Contributing to the
Underground Economy:
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Large number of taxpayers maintains no formal
accounts
Large number of non-banking transactions (cash
transaction /exchange/trade)
Miss pricing of invoicing in respect of goods and asset.
Illegal income remained unreported
Enormous national election cost by the candidates
Donation to political parties.
Transfer of fund to foreign countries.
Inequality of income.
Weak execution and complicated of laws.
Capital Flight due to Shadow Economy
A total of $14.059 billion (Tk.1,12,472crore) had been siphoned off
from Bangladesh in 10 years since 2001 through trade mis-invoicing,
corruption, bribery and tax evasion [Global Financial Integrity (GFI,
USA), report 2009-10].
Year
2006
Taka
Tk.22,224 crore
2007
2008
2009
Tk.18,984 crore
Tk. 6,784 crore
Tk. 5,192 crore
2010
Tk.18,936 crore
NBR member Syed Aminul Karim said, yearly USD 180 crore
(BDT.14,400 crore) had been siphoned off from Bangladesh, thus
loosing yearly tk.1,000 core as revenue. (Prothom Alo, 19.12.2012)
Possible way :
Controlling Shadow Economy
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Reform Tax system through expanding direct
tax net
Direct tax payers are few
The population of our country is near about
150 million where direct registered tax payer is
only 02 million. Even theses people don’t
paying their tax regularly and in accordance
with real tax assessment. According to the
information of NBR (National Board of
Revenue) only 1.4 million people are paying
their tax regular basis.
Possible way :
Controlling Shadow Economy ….. Continue
Type of Taxpayer in Income Tax Structure
No of
Taxpayer
Corporate
61,998
Other Tax payer
7,78,750
Minimum Tax payer
3,90,964
Only Tax File Holder
8,43,548
Total Tax Payer
20,75,260
Source: NBR annual report 2011
Type of Taxpayer
%
2.98%
37.53%
18.83%
40.66%
100%
Possible way :
Controlling Shadow Economy ….. Continue
Government heavily relies on indirect tax
The total tax and revenue mobilization performance is very much
dependent on indirect taxes.
Sector wise Tax performance in Revenue mobilization
Direct Tax
Indirect Tax
% of VAT in
total revenue
2000-2001
19.40%
80.56%
31.56%
2004-2005
19.49%
80.51%
35.00%
2008-2009
27.17 %
72.83%
38.36%
2009-2010
28.09%
71.90%
39.50%
2010-2011
29.49%
70.51%
38.23%
2011-2012
24.42%
75.58%
37.30%
Fiscal Year
% of total revenue
Source: NBR AR 2011
Possible way :
Controlling Shadow Economy ….. Continue
Reconsider new VAT policy 2012
- VAT proposed 15% on all product & services in general
and regressive as because;
- The VAT imposed with a uniform rate among the rich and poor
at the consumption level.
- A uniform VAT ignores equity, or more specifically, income
distributional issues, which are particularly relevant for
developing countries like Bangladesh.
- Because low performance of income tax make limit the asset
transfer to the poor and high performing VAT is creating income
inequality between rich and poor in developing countries
Possible way :
Controlling Shadow Economy ….. Continue
Why VAT is Regressive ?
Institute of Fiscal Study, UK comments that VAT always impinge the
poor livelihood. The study found that the poor are paying double
VAT than the rich based on the proportion of income earnings.
Source: Institute of Fiscal Study-UK
Possible way :
Controlling Shadow Economy ….. Continue
Reconsider Tax exemption policy
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Govt allows India 10years tax exemption of coal-fired power
plant under BIFPCL at Rampal, Bagerhat.
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In FY 2000-2005 total number of tax exemption cases were
1531 and the estimated loss of revenue was about 3.5 billion
US$ that was estimated as about 9.6 percent of total incometax earning during that period.
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MPs have been enjoying the benefit of importing tax free
vehicles since 1991, thus country deprived from around
tk.1,000 crore in taxes. The finance minister stated that 275
MPs of the last National Parliament (8th) imported tax free
luxury vehicles which tax amount would be tk.280 crore.
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Recently Govt. has exempted tk.29.85 crore tax out of tk.35
crore in respect of importing machinery by Akiz Steel Mills of
Akiz Group.
Possible way :
Controlling Shadow Economy ….. Continue
Cross-boarder information exchange
Under the cross country information exchange agreement, The Director of
International Taxation, India has collected taxes from cross-border transaction as
per following.
Year
Collected Tax by DIT, India
2002-03
INR.1,356 crore
2003-04
INR.1,29 crore
2004-05
INR.4,418 crore
2005-06
INR.8,049 crore
2006-07
INR.9,147 crore
2007-08
INR.11,790 crore
2008-09
INR.15,740 crore
2009-10
INR.16,198 crore
2010-11
INR.21,509 crore
2011-12
INR.27,442 crore
Source: White paper on Black money, India 2012
Other Challenges
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Strengthening govt. internal audit system.
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Weak political system and need strong political will
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Reviewing of different lax loopholes.
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Strengthening of NBR (man power, transparency, etc)
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Strengthen and effective money laundering act for preventing ML
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Accountability and punishment provision to accounting audit farms.
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To show zero tolerance to undisclosed money.
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Reward the taxpayers so that more people are encouraged to pay tax
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Collection and distribution of information
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Reduce revenue expense & channeling more finance in development
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Effective and appropriate utilization of national resources
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Need more study on it and to develop national consensus
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Country by country information exchange agreement may be done.
www.equitybd.org