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Govt woos black money

by Ravi Ladduwahetty

The Cabinet, at its meeting on Wednesday has approved the Inland Revenue Act (Special Provisions Bill), enabling investors to utilise their undeclared funds now ballooning in the informal economy (popularly known as the black market) estimated at Rs. 400 billion.

The Government will bring in the Draft Legislation in May, which enables investors to commence projects with their undeclared money where there will be no investigations or fines, Minister of Rural Economy and Deputy Finance Minister Bandula Gunawardena told the weekly Cabinet news conference at the Government Information Department auditorium yesterday.

The problem has zoomed to epic proportions. There is an estimated Rs. 200 billion stashed away locally and a further Rs. 200 billion overseas. These funds have been accruing through commissions from tenders, illegal land transactions, fishing, undeclared funds through gemming, import, export transactions etc.

The malady has further aggravated with the tax compliance dwindling with the passage of time. A few years ago, the compliance in taxation was as high as 60 per cent and now it has reduced to 35 per cent. It is projected to plunge to 20 per cent by 2004. It is indeed tragic that in a country that has a population of 18 million, there are only 1000 persons who are on the super tax bracket while the ordinary tax payers are only 160,000 said Minister Gunawardena.

What the Government intends doing is to make the requisite amendments to the Act so that these investors could infuse capital into projects such as property development, small and medium scale industry, transport, investments in capital goods where there would not be any queries into the origin of the funds and to what degree of funds would be used for these projects.

The Government will present the draft legislation in Parliament later next month so that the amended laws could be implemented soon. There will be an amnesty period of 18 months where no questions will be raised about the origin of the funds. They will also not be fined for the non compliance or for the delays in the payments, the Deputy Finance Minister said.

However, these investors will be liable for taxation from the profits of their investments. This is considered to be a very positive move in accelerating investment.

The Deputy Minister also recalled a seminar at which the late business magnate and banker N.U. Jayawardena had addressed at which he said that the local informal economy (the black money market) was estimated at Rs. 246 billion and the compulsion to draw from it which would usher in the much needed macro-economic equilibrium.

He said that the previous PA regime had also attempted to draw funds from the informal economy by bringing in a Tax Amnesty Law, but the anticipated returns were not forthcoming due to the defects in that piece of legislation.

The Government decision to bring in these legislative amendments was published exclusively as the Lead Story in the Daily News Business and Finance Pages of April 11 under the banner headline:" Government to draw investments from Rs. 400 billion black market."

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