Legal implications of whitening black money
M. Jashim Ali Chowdhury
THE honourable Finance Minister has come out with a sizzling proposal in his 2009-2010 budget speech and accordingly it has been passed. Keeping the dreary world economic recession in mind, he felt a strong necessity for entrenched financial investment and accordingly to encourage it offered a blank-cheque concession to the holders of black money (undisclosed money, to be gentle). As per the proposal, subject to the payment of 10% tax, investment in 46 productive and 14 physical infrastructure sectors shall be acclaimed without questioning the source of the capital under any law whatsoever. No time limit is mentioned in the Finance Bill in case of investment in buying residential flat or plot turning that facility into a never-ending one. Moreover to avail the chance, one need not invest in setting up a new industry. It is enough if he decides to repair, modernize and extend one of his earlier concerns. What a chance! Accepted the malady of economic downturn, this overdosed medicine confuses our legal minds more than it clarifies.
First, let's start with 'tax avoidance' and 'tax evasion'. We know that tax evasion is an offence while tax avoidance (a clever use of technicalities of law to lessen tax burden) is not. Now under the present proposal an honest but foolish taxpayer shall be punished with maximum 25% of income tax on his 'white money' while a clever and corrupt shall be rewarded by a lighter burden of 10% tax on his 'undisclosed' money. What happens if the foolish one becomes clever enough not to pay tax for the first two years and then show his white money as black in the third year? Does he avoid tax or evade it?
Secondly, Article 27 of the Constitution guarantees equality before law. Article 28 provides for positive discrimination which is sure to benefit the less favored group over the highly favored one and not vice versa (Dr. Sarkar Ali Akkas, 'Right to equality under the Constitution of Bangladesh', in Dr. Mizanur Rahman (ed), Human Rights and Corruption, 2007 at p 217). Discrimination with 'an evil eye and unequal hand' is never acceptable (Musaiam v. Venkatachalam, AIR 1956 SC 246). To generate extensive revenue income for a necessarily big budgetary allocation, imposition of wealth tax would be a just step. Suppressing the poor and rewarding the rich bleeds the spirit of our constitutional.
Thirdly, denying the poor their fundamental right to equal treatment is denying the basic structure of the Constitution. While the basic structure test is applied only against amendments of the Constitution and not in the testing of ordinary legislation, after the decision in Mardia Chemicals case in India it may be argued that the it may be used as an objective standard in ascertaining the arbitrariness or otherwise of legislation (Abhinav Chandrachud, 'How legitimate is non-arbitrariness? Constitutional invalidation in the light of Mardia Chemicals v. Union of India', Indian J. Const. L. pp179 -190 at p. 188)
Fourthly, corruption and discrimination survive on each other's willingness to accommodate, tolerate and provide encouragement. Corruption is anti-poor. Time is already ripe enough for a case to be made for the right to a corruption-free society as a fundamental human right (Dr. M Shah Alam, 'Broadening the Jurisprudential basis of Human rights to fight Corruption: Domestic and International Perspectives', in Human Rights and Corruption, at p. 7). As a fundamental right, the right to a corruption-free society cannot be discarded easily 'for the good of the greatest number, even for the greatest good of all' (Louis Henkin, The Age of Rights, 1990 quoted in C Rajkumar, 'Corruption and Human Rights-II', Frontline, Volume 19 - Issue 20, October 12-25, 2002, India's National Magazine from the publishers of The Hindu online. Corruption, if cannot be prevented must not be encouraged.
Fifthly, the Finance Minister's proposal shall revive the infamous section 19B of the Income Tax Ordinance, 1984 again. The Finance Act of 1999 added a new section 19B to the Ordinance providing that 'notwithstanding anything contained in this Ordinance or any other law for the time being in force, no question as to the source of any sum invested …shall be raised'. It was carried on by the subsequent government to be scraped by the last Caretaker Government. If no question is to be raised under any law whatsoever, then what are the utilities of other civil, criminal or anti corruption laws? Shall whitening black money silence the Police, RAB or Anti Corruption Commission? May a Finance Bill outcast all other laws en masse? (Anisul Huq, 'Khun Karun abong Chole Ashun (in Bangla) the Daily Prothom Alo, June 16, 2009)
Sixthly, of late there is a skin saving argument that only 'lawful but undisclosed income' shall be accepted under this scheme. But a plain reading of section 19B makes me wondering how to distinguish between 'lawful undisclosed income' and 'illegal income' especially when you don't ask anything about the source of the income? Then you only have to have 'faith' on the 'pious affidavit' of the holder of black money!
Seventhly, the corrupt tycoons who always wish the government to turn a blind eye to black money and permit by some means for its whitening shall sleep more sound than they slept earlier. Thus instead of taking steps to dismantle the black underground economy, the government is perhaps subconsciously becoming a party to looting of the State thereby allowing the national economy to be taken hostage by criminal predators (Mahmudur Rahman Chowdhury, 'Whitening the Black Money' in The Financial Express, March 25, 2009).
Eighth, even being bona fide concessions, historically this sort of legislations failed miserably in attaining their purposes. In 1786 Lord Cornwallis came to this region being faced with the challenge of curving out the rampant corruption of the Zaminders. And he promulgated the notorious Permanent Settlement Regulation, 1793 making the Zaminders the absolute owner of the land. The intention was that they will take steps to increase the cultivable land for the purpose of an agricultural revolution. But they became more corrupt in course of time, the legacy of which we still bear (S. M. Masum Billah, 'In quest of Democracy: Rule of Law, Anti Corruption Drive and Due Process of Law Interface', in Human Rights and Corruption, Dhaka 2007 at p 72). Set aside 1793, a similar package declared by the BNP-Jamat government in 2002 did not work. Black Money did not sweep away within three years. It is still here.
Last but not the least, though the prima facie presumption of law is that all statutes are enacted bona fide and the intention of Parliament in enacting the law is beyond question, the Court may not hesitate to 'step on the toes' of the legislature where a law is 'so outrageous in its defiance of logic or of accepted moral standards that no sensible person who had applied his mind to the question could have arrived at it' (Wesson Murray, 'Grootboom And Beyond: Reassessing The Socioeconomic Jurisprudence of The South African Constitutional Court', in South African Journal of Human Rights, Vol 20, 2004 pp. 284-308 at p.289).
As an expert puts it, "The law-making power of parliament, however widely and passionately interpreted, must be understood and exercised within, not outside, the limits of the Constitution. Once this power is exercised beyond its constitutional authorization and limit, it suffers from a legitimacy crisis. Parliament cannot exercise its power in a manner that undermines the very basic structure of the Constitution. Should this trend persist, there appears to be no palatable alternative other than judicial review by the SC under Article 7" (Professor Rafiqul Islam, 'Cognizance power of executive magistrates: Some issues', Law and Our Rights, April 4, 2009).
M. Jashim Ali Chowdhury is Senior Lecturer, Department of Law, Northern University Bangladesh (NUB), Dhaka.