June 28, 2009

Black money and PPR: The connection and moral

Syed Munir Khasru

The most talked about issue in the budget is the "whitening of the black money." It is rather unfortunate that such an immoral issue is still being debated instead of this idea being rejected by the government when this was originally conceived.

Under this proposition, an honest taxpayer who toils hard to earn and then pays tax, is treated worse than a dishonest citizen who hides income and does not pay tax. So the message is: make your illegal money, hide it at your convenience, wait for an opportune moment, pay nominal tax, and have your money and conscience whitened. Can this be a recipe for good governance and accountability?

One of the positive aspects of this budget is that it is by an elected democratic government as opposed to the budgets of the last two years by a caretaker government with no political mandate or accountability to any electorate.

AL is bound by its election manifesto in which fight against corruption was declared one of the major political commitments. The much talked about, "deen bodoler shonod" or "manifesto for change" will remain more in paper, if in reality actions send opposite signals. Hence, the argument of credibility and morality should weigh in more for the government than arguments built on economic reasoning, which in itself is flawed.

Both the finance minister and the PM's adviser for finance and planning are well known for their competency and integrity, and it indeed would be unfortunate if such policies were adopted when they are at the helm of affairs.

The negative effects resulting from the corrosive moral aspect of black money offsets whatever positives may be expected from this exercise. One of the arguments in favour of black money is that the world is in a recession and private investment is short in supply. Hence, we need to open a conduit for investment where this whitened black money will stimulate growth and generate employment.

To draw a simple analogy, a better argument would have been, "my father is poor and can't pay for my education and hence stealing from a neighbour to finance my schooling is cool!" or "my wife is in the hospital and my school-going son without any income pays the medical bills, and as a poor husband and father why should I care to ask from where my son got the money?" if end justifies the means -- who cares?
When people are encouraged to pay tax, the message from the government to citizens is something like, "We need this contribution from you to help the state serve you well." Why would a law abiding citizen feel morally obligated to pay tax if s/he sees that people who have not paid tax are far better off both in the short and long run?

Isn't it better to hide money, with time let it grow in silence and obscurity, and then reveal it when the time is ripe? This way, one can pay 10% on this hidden money as opposed to a regular taxpayer who can end up paying as much as 25% on his duly disclosed income.

So the morally bankrupt, but filthily rich, has more money to buy a posh apartment than an honest taxpayer from middle class who is struggling to finance his/her children's education. Under these circumstances, does the government have the moral right to expect an honest taxpayer to be compliant or a non-taxpayer to enrol himself/herself as a taxpayer? Can the tax net be expanded by encouraging people to become taxpayers when in reality tax dodgers are rewarded more than taxpayers?

The proposed modifications in Public Procurement Regulations (PPR) has already raised concern, even within the donor community. For those unfamiliar with PPR, it is a set of rules and regulations to ensure transparency in the process through which government purchases goods and services.

The intention is to check corruption and unfairness -- particularly based on undue political influence. If some form of lottery is introduced or projects of an amount as significant as Taka two crore can be awarded without fair competitive bidding -- it in itself is enough to inject seeds of corruption into the public procurement system.

Even if we accept the argument that some entities without prior experience should have opportunity to compete and win projects, other set of even-handed rules can be plugged in so that inexperienced firms also have the scope to compete with experienced firms. But the proposed arbitrary provision of awarding projects can very legitimately be perceived as another new conduit to make black money through undeclared commissions and undiscovered bribes.

The modified PPR creates an opportunity to make such black money and then whiten them within the declared three-year period of immunity. The connection between the two is obvious and ominous.

The AL should start listening to its MPs like the former Home Minister Major (Rtd) Rafiqul Islam who has rightly pointed out the constitutional invalidity of such a proposition. If this is challenged in court, it is not likely to prevail and will further embarrass the government. Given the massive mandate the AL has received, from the very beginning, it should be sensitive to high expectations that people have from it.

It is well known that a significant portion of people's verdict in favour of AL was more of rejection of BNP led alliance's endemic corruption of five years. Hence, a "yes" for AL was more of a "no" for "BNP's corruption." If the ruling party does not appreciate this message from the very onset, it is only a matter of time before fortune reverses and they are on the receiving end of people's punishment meted out in polling stations next time around. The greatest lesson of history is that we don't learn enough from history.

The author is a Professor at the Institute of Business Administration (IBA), University of Dhaka.

Source: The Daily Star, June 28, 2009.

NB: Friends/Readers, please keep in mind that, Mr. Syed Munir Khasru, was my BBA Programs faculty at Dept. of Finance, Dhaka University, Year 1998.