Cash transactions hold back economic growth

In principle, there is nothing wrong with cash financial transactions. The problem arises when they are used to evade tax, launder money, facilitate illegal deals or pay bribes. In such cases, the transactions become questionable.

A clear definition of cash transactions is essential. Issuing cash cheques and moving funds outside banking channels are common examples. The government has tried through various regulations to reduce reliance on cash, yet the impact has been limited.

As a result, financial statements are drifting away from reality, and personal finances are being pushed into the informal economy. These practices have fuelled large-scale tax evasion and corruption. The use of illegal funds for criminal activities adds another layer of concern that cannot be ignored.

Cash transactions are widespread in property deals, where a large portion of the payment takes place in cash outside the official deed value. Similarly, cash sales are often not deposited into company bank accounts and remain outside the books. Cash payments to suppliers are another area where tax evasion is a key motivation.

Recently, some bank officials have begun questioning ordinary clients about withdrawals exceeding Taka five hundred thousand. Yet it is striking that, within this environment, billions have been siphoned out of banks, apparently without similar scrutiny.

The government has introduced various measures to bring untaxed black money into the formal economy, but these have shown little success.

With the introduction of document verification, ICAB has ended the practice of maintaining multiple sets of financial statements. If cash transactions can be reduced or controlled, the quality of financial reporting will improve, and government revenue will be better protected, which in turn will help support economic growth.

There is also an irrational rule in the country. Any individual, regardless of income, tax history, social standing or financial position, is entitled to the same foreign currency quota, including international credit card limits. Money exchange houses operate largely on a cash basis, and the extent to which these are effectively monitored is unclear. Only account holders under the export retention quota receive some flexibility, and students are allowed to remit funds for overseas education. These narrow opportunities encourage further cash transactions.

Foreign currency quotas for overseas travel should vary according to income, frequency of foreign trips and annual personal tax contribution. In many countries, cash payments beyond petty purchases in small shops or street markets are rare. Some argue that cash cannot be avoided in retail trade. Yet daily sales can be deposited by evening or the next working morning. Bank branches are now widespread across the country.

Many companies, particularly foreign ones, already follow such practices. Salaries and wages can be paid through banks, as can student allowances, overtime and local travel costs, which is standard in all CA firms under ICAB requirements. No supplier should receive cash payments in any corporate entity. Auditors can attach a certificate to cash transactions with tax returns to ensure transparency. In property acquisitions, all payments, whether within or beyond deed value, should be subject to tax and penalties where evasion is detected.

Ultimately, digitalisation is a crucial tool for correcting these irregularities. Like many developing countries, Bangladesh must reduce cash transactions to remove a significant barrier to economic growth, and the sooner the better.

The writer is a senior partner of Hoda Vasi Chowdhury and Co, and past president of ICAB