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     Volume 4 Issue 52 | June 24, 2005 |

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Cover Story

A Budget without Direction

Shamim Ahsan

The extension of the scope to whiten black money, VAT on SIM cards and the poverty reduction programme are some of the major issues that have triggered a lot of heat in the country.

Though the opportunity of investing undisclosed income without any explanation was supposed to expire on the June 30, 2005, Finance Minister M Saifur Rahman proposed to extend the time limit for whitening black money for another year, because to use his own words, "We presume that a good number of people are holding such undisclosed income who, for some reasons or other, could not avail themselves of this opportunity."

So he proposed "to extend the time limit of disclosure of this type to income without any explanation by paying only 7.5 percent income tax thereon up to June 30, 2006."

The extending opportunity for whitening black money triggered quite a stir and in fact turned out to be the main bone of contention for experts, politicians, business leaders and general people alike. The money whitening issue along with the tax on SIM cards issue have been so pervasive that many other very significant issues in the budget are remaining un-discussed or receiving less attention than they really deserve.

One reason why the whitening issue raised such a firestorm is certainly the finance minister's zealous campaign against black money that he had been apparently carrying out until two days before the budget proposal. His drastic change in mind has certainly stunned everyone..

The finance minister in different pre-budget meetings announced the provision of whitening black money would be discontinued from next fiscal year. "We cannot allow legalisation of haram (illegal) money every year," Saifur commented when he sat with the National Board of Revenue (NBR) officials.

While this particular opportunity has been hailed by a few, most have joined in a chorus of strongly criticising the FM, saying that he ate up his words for the interest of a vested group who possess crores of black money.

Prices of essentials marked yet another rise after the budget

The scope of whitening black money has a long legacy. But the expected or expressed goal of allowing this opportunity never yielded results. Since independence almost every government has given this opportunity. The present BNP government has given the scope many times but a very small proportion of black money has become white. In the FY 1981-82 Saifur first gave this opportunity and during the first Khaleda-led government in '91 strongly criticised the policy. But in the first budget of Khaleda's second term Saifur once again gave this opportunity in the FY 2002-03. In that year investment of black money in the industry and commerce was allowed and in the following fiscal year the opportunity was further widened when investment of black money was also allowed in the share market 'without asking any question'.

Interestingly from July, 2002 to 2005, only Tk 1775 crore has been whitened while some 1077 persons have taken advantage of this opportunity. Earlier, between 1997 and 1999, a similar system encouraged black money holders to whiten their cash. At that time, about Tk 1,000 crore was whitened. The NBR collected Tk 100 crore in taxes against that whitened money. While the total amount of black money ( according to conservative estimates) is about half the GDP (Gross domestic production) of the country. Abul Barakat, a Professor of Economics, DU, and general secretary of Bangladesh Economic Society, however believes black money worth about Tk 70,000 crore is being produced every year in the country.

Though Saifur vowed not to give the opportunity of legalising haram money, he ate up his words when he proposed to extend the scope of whitening black money for another year

On the one hand the government is talking about fighting against money laundering and is proud about establishing Anti Corruption Commission. On the other hand, they are extending the opportunity of whitening black money. "It goes against the spirit of the constitution of Anti Corruption Commission. This is self-contradictory," cried out chairman of ACC, Justice Sultan.

Renowned economist and professor of Economics of Jahangir Nagar University Anu Muhammad wasn't surprised at Saifur's U-turn on the black money issue. What the FM has done about black money is quite expected. In fact many of the elements involved in making black money are very much part of the government itself. "Many in the cabinet, parliament and bureaucracy are black money owners and are directly involved in making black money," he explains.

Anu Muhammad has worked out some 22 sources of black money. "A big chunk of black money is produced through corruption in development projects and those of international contracts of oil and gas where the dealings take place between the government and different multi-national companies," he says.

Privatisation of state owned organisations and system loss are two other prominent sectors where a huge amount of black money is being generated. All sorts of irregularities by different government service providers like PDB, WASA etc, which we conveniently term as 'system losses' generate crores of black money. The other means is privatisation; black money is also produced when state property is sold in the name of privatisation at an extremely low price and to chosen buyers.

Another significant source of black money is 'informal business' (the hawkers, vendors, makeshift business shops, road-side restaurants, which are not included in the formal business). These informal businessmen have to pay a sizeable amount as chanda (extortion) or informal taxes, which is also black money.

The imposition of Tk 1200 VAT on SIM cards has drawn flak from the general people

The FM and a section of businessmen, however, would have us believe that the whitening opportunity for another year has some merit too. As the undisclosed money would come into the mainstream economy, investment will increase and the government will also earn a sizeable amount of revenue. In the post budget briefing the FM argued that black money might destabilise the country's economy. He also cites example of the recent unstabilised and the smuggling of a lot of money overseas. An NBR official at the same briefing commented that they have recently noticed a rise in heroine and gold smuggling, which, he thought, would further increase, if whitening opportunity were not given. Besides, the tendency of providing money for terrorist activities may also rise in the absence of whitening opportunity.

Experts virulently reject these arguments. Dr Zaid Bakht, research director of the Bangladesh Institute of Development Studies (BIDS), sees little in the argument. "No matter how much opportunity is given very little black money is actually whitened. Owners of black money do not sit and wait for the opportunity to get their black money white. Besides, no black money owners are going to take this opportunity thinking that this is going to be the last opportunity of whitening their black money. What the government should try to do is to stop the opportunity of creating black money."

While the allocation for defense is a little over than six percent it does not include the large funds the army receives from different ministries

Anu Muhammad toes the same line. Statistics aside, which eminently shows that such opportunities are hardly availed, Muhammad believes there is also no logic in assuming that black money owners are waiting for opportunities to whiten their ill-gotten cash. A few small black money owners take such opportunities, but the big fishes never do. "As far as bringing black money in the mainstream economy is concerned, as the FM fondly hopes, it is highly unlikely. Black money owners would go on investing their money in the black businesses like arms trade, drugs smuggling, sex trade, extortion etc, which is far more profitable. These are lame excuses," he says.

Like many, Anu Muhammad also believes that the upcoming national elections is one of the main reasons that changed Saifur's mind at the last minute. According to Muhammad about 95 percent of the total amount spent in the elections are black money. With just a year left the ruling parties cannot simply afford to forsake them and miss their invaluable services.

Subsidy in agriculture sector has been doubled, but the farmers don't often get the benefit due to corruption and mismanagement of different government agencies

The extension cannot be supported on moral grounds too. The FM himself termed black money as haram and even rejected some businessmen's demand of extending the opportunity, saying " it does not uphold morality or honesty." Besides, points out Barakat, while an honest taxpayer will have to pay 10 percent for an annual income of Tk 120000, a black money owner is getting away by paying just 7.5 percent tax on his illegal income. This opportunity undermines and discourages honest tax payers. Besides, the message the government seems to be giving is, it is economically prudent to go for dishonest means of income," Muhammad quips.

The whole debate of whether or not extending the opportunity of whitening black money is good is futile. It's a non-issue, which the FM is creating perhaps to divert the attention from the real issue. What is needed is to stop the generating process of black money, not the scope of whitening it, Muhammad observes. "The very nature of capitalism is that it produces black money. It cannot perhaps be totally eliminated, but what we can and should do is to make it difficult to generate black money," Muhammad observes.

Another proposal in the budget that created quite a commotion is the imposition of Tk 1,200 as VAT on SIM cards.

Muhammad is more critical of the mobile companies than the new levy of Tk 1200 on each SIM card. Anu Muhammad has thrashed the mobile companies for their greedy nature. There are an estimated 50 lakh mobile subscribers in the country. Different mobile companies are coming up with seemingly lucrative offers daily, in reality they are extorting the consumers. He points out that most mobile companies charge Tk 5 a minute on an average, which is much higher than even our neighbouring India. "Even at a rate of Tk 1 per minute the mobile business will be profitable, he claims citing experts' opinion in this regard. So, it is outright 'dacoity', what the mobile companies are doing," he says.

The government is doing nothing though. Neither do the World Bank and its crony organisations, who are always criticising corruption and wastage. The newspapers with the pleasant burden of large ads are reluctant to report on these issues. Adamji was laid off for losing Tk 1200 crore in 30 years whereas these mobile companies are looting away at least double that figure Tk 2400 crore in one year cutting public's pockets. But still we are singing in their praises.

Anu Muhammad is also very critical of the poverty alleviation programmes or rather the absence of them in the proposed budget. "Significantly this is the first time that poverty reduction programmes have been drawn in line with the PRSP (Poverty Reduction Strategy Paper). Unfortunately there is nothing in the budget that gives the impression that the government is doing or even thinking of doing anything about poverty reduction," Muhammad says.

All the successive governments have been talking tall about reducing poverty but over the last three decades more and more people have gone below the poverty line. Terming programmes like allowance for the elderly and the distressed (Tk six a day per person) as no better than paying alms, Muhammad points out that the government is not addressing what should be the real concern it should address how poverty is created.

Unemployment is the biggest cause of poverty and the budget doesn't give any direction in this regard. "The budget doesn't offer any plan for developing the productive sectors, especially the agriculture and industry, through which large scale employment opportunities can be created," Mohammad says. Governments often claim that they create a lot of employment opportunities as they are always building roads, bridges, buildings etc. "Construction job is not employment in the real sense as the end of construction of building or a road means loss of job for hundreds who don't know how they would earn their next day's living. We need to go for manufacturing industry more and more if we want to create large scale employment opportunities and create skilled manpower," he explains. "Unfortunately we are witnessing a kind of de-industrialisation, more and more industrial units are shut down while very few new ones are being set up," he laments.

Another way of creating employment opportunity is development of human resources. The government will have to ensure that everybody gets access to education and health care. An educated and healthy man can find his own job. But instead we are creating inequality in the society and thus broadening the scope for producing more and more poor people," he opines.

Muhammad says that programmes like giving 'alms', which is being called allowance for the sake of decency, cannot be in the mainstream programme or a national programme to fight poverty; it is a illogical way to deal with poverty. If we can develop the productive sector in a big way, poverty will automatically be reduced; there will be no need of any separate programme like a poverty alleviation programme," he says.


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