Bringing Back the Money through Offshore Voluntary Disclosure Programme (OVDP): Dr. Sams Uddin Ahmed Bangladesh Perspective Commissioner of Taxes [email protected] Abstract Illicit capital flight has become a growing problem for Bangladesh. Every year a huge amount of money is being siphoned off from Bangladesh. According to Global Financial Integrity (GFI) report ‘Illicit Financial Flows from Developing Countries: 2004-2013’ Bangladesh ranks 26th among 149 countries draining more than $5.58 billion money per annum. Nearly $9,666 million in illicit money was siphoned off from Bangladesh in 2013 which is $2,000 million more than the previous year. This money remains untaxed to the detriment of the national revenue. Due to flaws of anti-money laundering act and institutional weakness of the revenue administration this illicit financial flow out of Bangladesh has become a regular phenomenon. The purpose of this article is to argue that it is high time that the tax administration declares offshore tax amnesty to bring the money back to Bangladesh. Offshore tax amnesty like ‘Voluntary Disclosure Programmes’ is now common place and tax administrations around the world are using this scheme to tackle the problem of capital flight. Bangladesh can follow the suit and bring back the money into formal economy. Keywords: Bangladesh, Tax amnesty, Voluntary Disclosure Programme, illicit financial flow. Part I: Introduction Illicit capital flight has become a growing problem 2013 cited by Gould and Rabel,2018).According for developing countries like Bangladesh. Because to Global Financial Integrity (GFI) report ‘Illicit of illegal capital flight mostly to tax havens, the Financial Flows from Developing Countries: 2004- developing countries lose huge amount of much 2013’ Bangladesh ranks 26th among 149 countries needed tax revenue (Purje al, 2010). Capital flight draining more than $5.58 billion money per annum. erodes the domestic tax base (Cuddington, 1986). Nearly $9,666 million in illicit money was siphoned Every year a huge amount of money is being off from Bangladesh in 2013 which is $2,000 siphoned off to the tax havens from countries million more than the previous year. The ‘Banks in around the world. It is estimated that almost eight Switzerland 2016’ report reveals that Bangladeshi percent of global wealth is sent to tax havens without nationals have deposited over Tk1,000cr in various being reported to the tax authorities (Zucman, Swiss banks in 2015. The total deposited amount in THE COST AND MANAGEMENT 57 ISSN 1817-5090, VOLUME-47, NUMBER-01, JANUARY-FEBRUARY 2019 Swiss banks from Bangladesh stood at Tk4,730cr in notes the most governments introduced tax amnesty 2015, which increased to Tk5,685cr in 2016 (Mowla, programs to fight against tax evasion and adjust the 2017). This money remains untaxed to the detriment shadow economy and increase tax revenues in the of the national revenue. Country’s the then finance short term and expand tax base in the long term.” minister admitted that money was laundered from Of late offshore voluntary disclosure programmes the country, but it was not possible to stop the have become popular among the tax administrations outflow of money completely. “What we can do is around the world. As OECD(2015) notes, “In to lessen the opportunity for siphoning off money. general terms, voluntary disclosure programmes That means taking measures to stop generation are opportunities offered by tax administrations of black money.” (Haque, 2017). It is interesting to to allow previously noncompliant taxpayers to note that in six years between 2012 and 2017, the correct their tax affairs under specified terms. country has seen a 17.3 per cent growth in the Several countries currently operate explicit number of what is called 'Ultra High Net Worth voluntary disclosure programmes or have an (UHNW)' (WEALTH-X, 2017). But tax GDP ratio administrative practice which supports voluntary remains one of the lowest in region, around 10%. It disclosures. Such rules or programmes provide might be an indication who might be involved in the an opportunity to facilitate compliance in a timely illicit financial transfer from Bangladesh. So it is clear and cost effective manner, saving costly and that illicit financial flows poses a major hurdle for contentious audits, litigation and criminal emerging economies like Bangladesh. The current proceedings.”However, tax administrations around anti-money laundering law and tax measures seem to the world have found the voluntary disclosure fail to curb the problem of illicit financial flow. Under programme useful in collecting the revenue the circumstances, the government should adopt through voluntary disclosure of assets and money new measures to combat the problem. The purpose hidden abroad. For example from 1978 Greece of this article is to suggest that right at this moment implemented 11 tax amnesty programs and many Bangladesh can go for offshore tax amnesty programs more amnesty-like schemes (Argyropoulou, 2018). like Overseas Voluntary Disclosure (OVD) to bring Italy has a long history of tax amnesty programmes back the money to Bangladesh. Tax administrations (Grilli, 2015). The US offers repeated tax amnesty. around the globe are declaring offshore tax amnesty In the 1980’s, nearly 30 states in the United States programmes. According to OECD ( 2015), ‘Offshore (Villalba, 2017) and later more countries joined the voluntary compliance programmes or initiatives group (Shevlin et al, 2016). Spain also follows the offer the opportunity to maximize the benefits of suit like its other European partners and introduced improvements in transparency and exchange of amnesty in 2012 and the same was declared information for tax purposes, to increase short- unconstitutional by the Spanish court (Espinosa, term tax revenues and improve longer-term tax 2018). Indonesia implemented successful tax compliance.’ So it is worthwhile for Bangladesh amnesty programmes. Pakistan also offered the same to declare offshore tax amnesty to bring back the amnesty to tax dodgers who held assets and money laundered money. The article is arranged as follows: within and outside the country. Thus until 2016, 38 While part I gives an introduction, part II discusses countries implemented tax amnesty programmes offshore tax amnesty of some specific countries like (Hermansyah, 2016) and this trend is ongoing. Italy, Indonesia, India and some others. Part III makes Emphasis is being shifted on the offshore amnesty some suggestions about the nature and extent of rather than onshore one. According to Johannesen suggested offshore tax amnesty in Bangladesh. Part and Zucman (2014) there has been a rise of offshore IV makes some concluding remarks. tax amnesty participants because of the G20 Part II: Offshore Tax Amnesty: countries forced the tax havens to exchange bank information with the tax administrations. Below a Country Experiences few selected county experiences are furnished Tax amnesty is a common tools for the tax briefly that could be useful guide for Bangladesh. administration around the world to collect quick revenue and also to curb the problem of tax evasion. Australia As Mouloud (2015) states, “Quick glance of the In 2014, Australia launched Project DO IT, as a financial history of governments all over the world short-term “never-to-be-repeated” opportunity for taxpayers to correct their offshore tax affairs and THE COST AND MANAGEMENT 58 ISSN 1817-5090, VOLUME-47, NUMBER-01, JANUARY-FEBRUARY 2019 to return back into the tax system. Incomes in the The ATO never repeated the amnesty programme. wake of reinforced commitments to exchange of But it can be said that the project was a success in information and automatic exchange of information bringing lost revenue and also expanding the tax net and is supported by a strong communication for the future, creating scope for additional revenue. campaign. The project DO IT attempted to encourage taxpayers with illegal offshore money to Indonesia come forward and declare the same to the ATO. It is In Indonesia tax amnesty was first introduced in 1964 to be noted that the ATO did not impose the usual covering income tax, corporate tax and property tax. financial and non-financial penalties for such kind of Under that scheme no question was asked as to the tax evasion (Moretti, 2016). The Project specifically source of the money declared. So basically anybody targeted taxpayers with undeclared offshore including corrupt government officials could declare accounts or those who regularly profit from money and seek amnesty easily. After a long break international affairs that escape imposition of proper again in 1984 second tax amnesty was declared tax. The ATO is not willing to call it a tax amnesty by the president of Indonesia. This time monetary due to the apprehension that this might cause penalty was imposed for some cases 1% and in resentment among the honest taxpayers. The ATO some other cases 10%. In 2016 tax amnesty was says, “The initiative ran for nine months from March declared for the third time in Indonesia. Huda and 2014 to December 2014. It was not an amnesty. Hernoko (2017) states, “The motive of establishing Rather, it was an initiative that encouraged taxpayers the policy of tax amnesty, in this three time, dealt with undisclosed income, capital gains and over with the importance of people’s contribution for claimed deductions to re-engage with the Australian national development by optimizing all existing tax system by making a voluntary disclosure.”The resources one of which was from tax. People Project DO IT programme encouraged participants awareness and obedience to do their tax liabilities to disclose all offshore assets and income, not in any still needed to be improved since the assets, both particular financial institution. In fact, disclosures inbound and outbound, were not fully reported in were received for accounts in more than 90 different income tax return. In order to improve the national countries or jurisdictions.