Black money allowed in stocks, realties

Investment of untaxed money in stock market, real estate in FY21

• The facility will be given for FY2020-21 only
• Stock investors have to pay 10% tax within 30 days of investment
• Undisclosed money can be invested in land purchase and development
• Taxes for flat and land purchase will range from Tk500 to Tk20,000 based on their location

The stock market and the real estate industry anticipate a major boost as the government plans on allowing unconditional investment of untaxed money in these sectors for one year beginning from July 1, 2020.

People who will avail the facility to invest in securities such as stocks, mutual funds and bonds will have to pay only 10 percent tax within 30 days of their investments without any penalty.

The stock market will enjoy the benefit of investments from undisclosed income after more than two decades. Earlier in 1998, two years after the devastating crash of the stock market, a similar facility was offered by the then finance minister Shah MS Kibria for three years.

The real estate sector that is currently enjoying investments of untaxed money only on buying apartments will get the benefit expanded to the purchase and development of land. People have to pay different amounts of taxes ranging from Tk500 to Tk20,000 per square metre depending on the locations of  the purchased lands.

The lowest tax rate will be applicable for remote village areas, while the highest rate will be applicable for Gulshan and Banani areas of the capital. For municipality areas, the minimum tax will be set at Tk5,000 per square metre.

On the other hand, Tk500 to Tk4,000 per square meter will be payable as taxes for buying buildings or apartments in different areas. 

The highest tax rate will be applied on purchasing buildings and apartments at Gulshan Model Town, Banani, Baridhara, Motijheel Commercial Area, and Dilkusha Commercial Area of Dhaka city. In this case, the area of the purchased building or apartment must not exceed two hundred square metres.

Both stock market and real estate operators have welcomed the move and termed it a "great decision" towards making these two sectors vibrant. 

"The capital market will get new life if the decision is implemented," says Md Rakibur Rahman, a director of the Dhaka Stock Exchange (DSE).

He argues that stock market investors who have been affected badly by the impacts of the coronavirus pandemic will also benefit from the move. "It will usher in a new era in the market," he hopes.

"This is the best solution to the current crises in the stock market," says Shakil Rizvi, another director of the DSE and president of DES Brokers Association.

Where any such sum invested is withdrawn from the capital market within three years from the day of investment, such sum shall be deemed to be income of the assessee for that income year classifiable under the head "Income from other sources". 

Alamgir Shamsul Alamin Kajal, president of the Real Estate and Housing Association of Bangladesh, says, "The decision, if executed, will help not only the real estate but also other allied sectors to recover from the rampage of the virus." 

Over 35 lakh people are directly involved in this sector and they are passing hard times as there are no sales right now, he maintains.

Under the existing tax law, people can legalise their undisclosed money by paying a penal tax in addition to the normal tax. In the new proposal, a flat tax of 10 percent will be set for cash, bank deposits, financial schemes and instruments, all kinds of deposits or saving deposits, savings instruments or certificates for the fiscal year 2020-2021. 

Finance Minister AHM Mustafa Kamal is expected to announce a tax incentive package while presenting the national budget at the parliament on June 11.

Salvaging the pandemic-hit economy through fiscal measures will get priority in the upcoming budget, instead of mobilising higher revenue, according to a senior tax official.

Some measures will be devised to bring the grey economy under the tax net, he says without elaborating further.

Responding to a query, a policymaker at the tax department said, "Under the existing tax ordinance, any undisclosed money can be invested after paying a fixed amount of income tax and fine. 

"However, a relatively small number of taxpayers utilised this opportunity in the last few years."

Taxpayers whitened undisclosed money amounting to Tk450 crore in the fiscal year 2015-16, but there is no data after that, said NBR sources.

Since the independence of Bangladesh, most governments had provided the opportunity to whiten black money, but those initiatives mostly failed to get any serious attention. 

However, the NBR added that around Tk9,000 crore was whitened during the caretaker government era, while this amount is Tk13,372 crore during the 44 years between 1972 and 2016.The government also earned revenue amounting to Tk1,454 crore from this process.

There is currently no accurate statistics on the amount of black money in the country. But a finance ministry report in 2010 revealed that the amount would be around 37 percent of Bangladesh's GDP.

Besides, US-based think tank Global Financial Integrity (GFI) revealed that Tk5,30,000 crore have been laundered from Bangladesh in the ten years between 2005 and 2015. The organisation estimates that more than Tk50,000 crore is being laundered out of Bangladesh every year.

According to a survey conducted by the Bangladesh Economic Association in 2018, undisclosed money amounting to Tk5-7 lakh crore is being circulated in Bangladesh's economy annually. 

Meanwhile, talking to The Business Standard, former chair of the National Board of Revenue (NBR) Dr Abdul Mazid said the revenue board should have special tax treatment in respect of investment to help money circulation in the economy. 

The NBR can also reduce corporate tax to help them accumulate funds for further investment and generate employment to offset the economic blow caused by the Covid-19 pandemic.