DHAKA -- For Bangladesh, the six months through December amounted to a watershed as a record-breaking $1.2 billion in assets were legalized and thus prevented from ending up parked overseas.
The "unprecedented" response by over 7,500 Bangladeshis to a tax amnesty program that lasts through June highlights how much black money vacations in the South Asian nation's mammoth underground economy, estimated to be as large as 63% of gross domestic product.
The government is currently allowing tax evaders to legalize their property, savings, cash and stock investments without facing any questions regarding the sources of their income if they pay levies at rates based on the sizes of location-specific plots of land or apartments, or 10% on some assets.
Revenue officials insist a flat 10% tax rate and no scrutiny from government watchdogs helped draw hidden wealth into the mainstream economy. Others say COVID-19 forced tax evaders to keep capital within the country instead of flying it to popular North American, European, Southeast Asian and Caribbean tax havens.
The program could inspire the governments of other Asian countries that have poor tax collection records and are being further squeezed as the pandemic slows their economies and revenue streams.
"The [offer] has never been so generous," said Ahsan H. Mansur, executive director of the Policy Research Institute, a leading think tank in Dhaka. "The tax rate is one-third of what genuine taxpayers pay. So, it was essentially very lucrative."
Selim Raihan, executive director of the South Asian Network on Economic Modeling, a research group based in Dhaka, sees the phenomenon through the lens of COVID-19, saying the pandemic prompted dishonest people to keep cash within the country, as they found little scope for sending black money abroad.
To Raihan, who teaches economics at Dhaka University, it is better to allow black money to be whitened if it can be channeled into "productive" investments, boost the economy and stem money laundering.
Bangladeshis are among Asia's least-taxed citizens. They number 170 million, though fewer than 2.5 million, mostly private-sector employees, pay taxes.
Also, for a second year running, the country in 2020 was South Asia's most corrupt, except for war-ravaged Afghanistan, according to Transparency International's latest investigation, unveiled last week.
Raihan said the revenue administration reform supported by strong political commitment is crucial to raising the tax to GDP ratio.
"We couldn't even follow the regional best practices," he told Nikkei Asia, citing the successful value-added tax or VAT reform in Thailand and the Indian rollout of a goods and services tax.
Bangladesh launched a value-added tax of its own in July 2019, but it was met with consternation among merchants and their customers as well as noncooperation from corrupt tax collectors and business lobbies.
Mirza Azizul Islam, who served as the finance minister in 2007 and 2008 and is now a visiting economics professor at Brac University in Dhaka, says it is important to put a brake on the sources of illicit income such as smuggling and trade-based money laundering. But he is opposed to offering this facility every year because, he says, it "will foster illegal activities."
False trade invoicing alone cost Bangladesh an average of $7.53 billion a year from 2008 through 2017, according to a 2020 report by Global Financial Integrity, a Washington think tank. That represents almost 18% of the country's overseas trade.
Bangladeshis' untaxed money is kept in bank accounts, real estate, stocks, savings instruments, overseas deposits, cash, gold and jewelry. But the pandemic changed the game.
"People were in peril with money during COVID," said Manirul Huda, president of the Bangladesh Tax Lawyers' Association, adding black money holders did not launder cash as uncertainties over their lives and the fate of their overseas deposits cropped up.
Still, insiders say few big fish -- ministers, lawmakers, bureaucrats and law enforcement officers -- came forward to declare untaxed assets. "They won't come, because the reputational loss will be huge," Mansur of the Policy Research Institute said.
The bulk of the money, meanwhile, has been invested in the real estate sector, heating up the property market, according to insiders.
Those who did come forward were businessmen, ordinary people and some professionals. One High Court attorney who formalized his assets did so by paying a $230,000 levy, his income tax lawyer said without giving further details.
Mohammad Firoz Iftekhar, a Chittagong-based income tax lawyer, said his elite clients in the port city paid around $1.2 million in taxes to legalize their properties.
"In the past, people couldn't submit returns for income tax-related complexities," he told Nikkei. "This year, they've got the opportunity to legalize properties bought even 20 years ago."
In the fiscal year to June 2008, Bangladeshis introduced $1.14 billion -- the second-highest repatriation amount -- to the formal economy, chastened to do so by a military-backed interim administration that was arresting thousands on corruption charges, including current Prime Minister Sheikh Hasina and Begum Khaleda Zia, leader of the opposition Bangladesh Nationalist Party.
The World Bank has warned that Bangladesh's economic growth will fall to 1.6% in the current fiscal year, from 5.3% in the year ended last June.
To jump-start the pandemic-wracked economy, the government needs more tax revenue. Between July and December, income tax receipts amounted to $4.03 billion, far short of the yearly target of $12.4 billion.
A tax policy official who preferred to remain anonymous estimates that undisclosed wealth amounting to $3.5 billion will be formalized by the end of June.
Nasiruddin Ahmed, a former NBR chairman, has advised the government to diversify its revenue sources rather than raising "so cheap" taxes from the shadow economy, which goes easy on those who have profited from hiding their cash.
"Why is the government desperate here?" asked Ahmed, who now teaches public finance at Dhaka University.
Mansur is aggrieved that dishonest people are being rewarded, calling it "the worst kind of moral hazard."
Indeed, the offer of amnesty conflicts with Sheikh Hasina's "zero tolerance" for corruption campaign.