CaPtAiN_pLaNeT
SENIOR MEMBER
Can all transactions in 'black economy' be construed as money laundering?
Can all transactions in 'black economy' be construed as money laundering?
M. A. Taslim
Black money arises out of transactions that are either expressly illegal, or legal but not reported in order to evade taxes. Since incomes on which due taxes have not been paid is illegal post fact, all black money is illegal according to the tax laws of the land. Such money must not be confused with the unreported incomes of the less fortunate section of the population who are exempted from reporting because their incomes fall below the subsistence threshold level as determined by the government.
Unreported incomes do not necessarily imply unrecorded incomes in the national accounts of Bangladesh. The Bangladesh Bureau of Statistics (BBS) imputes values to unreported economic activities to arrive at an estimate of the total unreported income. Virtually all incomes in the agricultural and the informal sector are unreported incomes, and are estimated by the Bureau of Statistics through appropriate methods of imputation. Thus much of the unreported incomes are actually recorded and hence the black economy, defined as above, does not measure the extent to which the GDP is underestimated. Indeed, whether legally exempted unreported income should be included in black economy is a moot point.
It is also not the case that black money is not recorded. Most of the black money is spent on legal transactions; it is invested in different assets such as real estate or spent in conspicuous consumption. Much of it should be picked up in the GDP estimated by 'the expenditure approach' i.e. adding up all final expenditures made in the economy.
Since a very large part of the income earned by the population is not reported, and income reporting of the rest is admittedly of a poor quality, the BBS does not even attempt to measure the GDP of the nation by the income approach. Its estimates are based on the expenditure approach and the value addition approach. These methods should capture most of the final output produced in the economy. Hence, the extent of the black economy quoted by the Finance Minister would appear to be rather too large.
The opportunity given to the black money holders to legalise their black money through investment in the stock market is showing the expected result. The stock market general index has risen by more than 25 per cent in less than two months, and still rising. Another bubble seems to be in the making. The Minister publicly complained of foul play, but his complaint lacked credibility.
A problem with highlighting of such an extravagant sway of the black economy from the highest level of the government is that it sends out wrong signals about the economy especially to foreign communities. If up to 82 per cent of the economy is black economy, then most of the monetary transactions in the economy could be construed as money laundering! Such a possibility could make foreign business enterprises unduly cautious when planning to invest in Bangladesh.
No one can legally challenge the right of an elected government to adopt any permissible fiscal measures. Concerned citizens may only protest to make their disagreement known. However, it is expected that a responsible government will not dabble in concepts or data that are more likely to confuse than illuminate. Transparency is an essential prerequisite of good governance.
(The writer, Dr. M.A. Taslim, is a professor of the Department of Economics, University of Dhaka. He may be reached at m_a_taslim@yahoo.com)
Can all transactions in 'black economy' be construed as money laundering?
M. A. Taslim
Black money arises out of transactions that are either expressly illegal, or legal but not reported in order to evade taxes. Since incomes on which due taxes have not been paid is illegal post fact, all black money is illegal according to the tax laws of the land. Such money must not be confused with the unreported incomes of the less fortunate section of the population who are exempted from reporting because their incomes fall below the subsistence threshold level as determined by the government.
Unreported incomes do not necessarily imply unrecorded incomes in the national accounts of Bangladesh. The Bangladesh Bureau of Statistics (BBS) imputes values to unreported economic activities to arrive at an estimate of the total unreported income. Virtually all incomes in the agricultural and the informal sector are unreported incomes, and are estimated by the Bureau of Statistics through appropriate methods of imputation. Thus much of the unreported incomes are actually recorded and hence the black economy, defined as above, does not measure the extent to which the GDP is underestimated. Indeed, whether legally exempted unreported income should be included in black economy is a moot point.
It is also not the case that black money is not recorded. Most of the black money is spent on legal transactions; it is invested in different assets such as real estate or spent in conspicuous consumption. Much of it should be picked up in the GDP estimated by 'the expenditure approach' i.e. adding up all final expenditures made in the economy.
Since a very large part of the income earned by the population is not reported, and income reporting of the rest is admittedly of a poor quality, the BBS does not even attempt to measure the GDP of the nation by the income approach. Its estimates are based on the expenditure approach and the value addition approach. These methods should capture most of the final output produced in the economy. Hence, the extent of the black economy quoted by the Finance Minister would appear to be rather too large.
The opportunity given to the black money holders to legalise their black money through investment in the stock market is showing the expected result. The stock market general index has risen by more than 25 per cent in less than two months, and still rising. Another bubble seems to be in the making. The Minister publicly complained of foul play, but his complaint lacked credibility.
A problem with highlighting of such an extravagant sway of the black economy from the highest level of the government is that it sends out wrong signals about the economy especially to foreign communities. If up to 82 per cent of the economy is black economy, then most of the monetary transactions in the economy could be construed as money laundering! Such a possibility could make foreign business enterprises unduly cautious when planning to invest in Bangladesh.
No one can legally challenge the right of an elected government to adopt any permissible fiscal measures. Concerned citizens may only protest to make their disagreement known. However, it is expected that a responsible government will not dabble in concepts or data that are more likely to confuse than illuminate. Transparency is an essential prerequisite of good governance.
(The writer, Dr. M.A. Taslim, is a professor of the Department of Economics, University of Dhaka. He may be reached at m_a_taslim@yahoo.com)


