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There is a concern among taxpayers that disclosure of the actual assets in the tax returns can result in tax-related harassment, it said.

“Honest taxpayers get frustrated when they are subjected to additional investigation, while evaders are not brought under scrutiny,” it said.

“Moreover, taxpayers get demoralised with recurring opportunities to legalise undisclosed money,” said the WB, adding that the NBR and the Anti-Corruption Commission were not allowed to raise any questions on such declarations.

“Such policies create a moral hazard problem and widen the trust deficit,” it added.

A one-off decision to earn revenues through such measures can be beneficial in bringing some undisclosed assets under the system, it said.

However, continuation of such policies demotivates honest and regular taxpayers and encourages tax evaders to continue their misdeeds by creating an expectation that they will be able to legalise their wealth, said the WB.

Illicit capital flows through various means have been depriving the government of revenues, said the multilateral lender.

“Illicit capital flows to offshore accounts have been on the rise,” it said, citing a State of the Tax Justice Report 2020 by Tax Justice Network.

The report estimated offshore financial wealth of Bangladeshis at 0.7 percent of the gross domestic product (GDP).

The tax and revenue losses, which include losses from corporate abuse and offshore tax evasion, are estimated at over $700 million or 2.2 percent of FY20 revenue, the WB said.

“This is high compared to some of Bangladesh’s peer countries.”

The WB said Bangladesh currently ranks 54 among 133 countries in the Financial Secrecy Index, which measures how intensely a country’s tax and financial systems serve as a tool for individuals to hide their finances from the rule of law.

“Most of the money laundering in Bangladesh occurs through trade misinvoicing,” it said referring to the Global Financial Integrity Report 2021.

The report estimates that as much as $3.6 billion per year was laundered from Bangladesh through trade misinvoicing on an average between 2009 and 2018.

“Bangladesh ranked 44th globally and 3rd in South Asia in terms of illicit outflows of money through trade misinvoicing,” said the WB.