Black lack money is a term used for the funds earned through illegal activity and otherwise legal income that is not recorded for tax purposes. The illegitimate money may have been generated through illegitimate activities not permissible under the law, like crime, drug trade, terrorism and corruption, all of which are punishable under the legal framework of the state.
Black money, often called unaccounted income or parallel economy has crippled Indian economy. Black money causes financial leakage as unreported income that is not taxed caused the government to lose revenue. It has led to deep penetration of the roots of corruption and led to the human greed. Apart from this, it leads to erosion of societal values of honesty, truthfulness, faith and fulfillment of one’s duty. The web of black money overshadows transparency, accountability, efficiency and reliability
Menace of Black Money in India
There have been several estimates regarding the extent of black money economy in India. A former CBI Director of India claimed that total black money in India is estimated around $500 billion. Although black money in India is a decades old problem, it has become real threat after the liberalisation era. Illegal activities such as crime and corruption, non-compliance with taxation requirements, complex procedural regulations, cultural and social practices, globalisation, weak institutional policy, legal and implementation structures have given rise to and sustained the black money economy.
The criminal component of black money is build up by proceeds from trafficking in counterfeit and contraband goods, smuggling, illicit trade etc. The corrupt component of the black money nurtures from leakages from government social spending programs, black marketing of price controlled services etc.
Sources of Black Money
Black money is circulated, utilised and the profits earned are further invested in other sectors to generate further money. The black economy of India is sustained through various sectors. This includes the real estate sector which creates incentives for tax evasion through under-reporting of transactions in real estate. The bullion and jewellery sector gives the buyer an option of converting black money into gold and bullion, which can be evaded from the eyes of the tax authorities.
Public procurement has grown phenomenally over the years in volume, scale and variety as well as complexity . The Competition Commission of India had estimated total public procurement figure for India at around 10 to 11 lakh crore per year which has provided ample scope of corruption due to rigged procurement process, generating black money. The Financial Action Task Force (FATF) highlights black economy prevalent in non-profit organisations where taxation laws that allow certain privileges and incentives for promoting charitable activities are misused and manipulated. Further, unregulated cash economy, tax havens, hawala transactions and offshore financial centers specialising in non-residential financial transactions all are prone to generating black money. Apart from this Trade-based Money Laundering (TBML) also contributes to black money as it involves covering up the proceeds of crime and moving a certain amount of money through the use of trade transactions in an attempt to legitimise their illegal origins.
Impact of Black Money
The portion of country’s income tied to black money affects the economic growth of the country. It also affects the investment pattern in the economy. Private investments are done mostly in the high end and luxury goods such as clubs, spa or bars, which results into shortage of funds for expenditure in social sector, that includes health and education. There is huge loss of taxes amounting to billions to the exchequer. Black money leads to further corruption by creating a vicious cycle of circulation of the illegitimate money in the economy. Investments that must have been made in the country giving the necessary boost to economy are invested elsewhere. It dilutes the policies of the RBI that targets inflation as RBI doesn’t take into account the effects of black economy on the money supply in the economy. Forward trading of goods by speculators funded by black money cause fluctuation in prices of various commodities due to hoarding. It also threatens National security because black money is used to finance criminal activities. Black money generated from drugs and smuggling is used to operate terror networks.
Steps Taken by Government
With an aim to curb the black money, the government has initiated Tax Reforms such as rationalisation of income tax to improve and widen the tax base and lower the effective taxes. Further, the government allows reporting black money generated through tax evasion in a given time frame by the Voluntary Disclosure Schemes. Also, to remove the existing unaccounted and illegitimate wealth from the economy, the government demonetised the currency in 2017. Cashless transactions are being encouraged by various incentives so that more transactions can be carried out by the formal banking systems.
Legislative framework to fight with black money has been strengthened. This includes Prevention of Money Laundering Act, 2002, Benami Transactions Prohibition Act, 1988, Lokpal and Lokayukta Act, Prevention of Corruption Act, 1988 and the Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015. Institutions to deal with black money have been made more effective. Institutions such as Central Board of Direct Taxes, Enforcement Directorate, Financial Intelligence Unit, Central Board of Excise and Customs, Central Economic Intelligence Bureau and Other Central Agencies such as National Investigation Agency (NIA), Central Bureau of Investigation and Police Authorities have been given extensive powers to deal with the menace of black money.
International cooperation has also been sought to deal with black money. Multilateral Convention on Mutual Administrative Assistance in Tax Matters has been signed. India has always stood beside the principles laid down in the United Nations Convention against Corruption, United Nations Convention against Transnational Organised Crime, United Nations Convention against illicit traffic in Narcotic Drugs and Psychotropic Substances etc.
Evaluation of Steps Undertaken by Government
Under pressure from India and other countries, Switzerland has made key changes in its local laws giving assistance to foreign nations in their pursuit of black money allegedly stored in Swiss Banks. These amendments, would allow India and other countries to make ‘group requests’ for information about suspected black money hoarders which will make it easy for the Indian authorities to catch the hoarders.
Various steps undertaken to fight black money shows mixed results and these are as follow
• The government has been able to recover black money of 69,350 crore under the Income Declaration Scheme and Black Money and Imposition of Tax Act. Another 5000 crore was recovered under the Pradhan Mantri Garib Kalyan Yojana (PMGKY).
• Around 650 people declared money worth 4,100 crore deposited in foreign banks as the black money under Undisclosed Foreign Income and Assets Act, 2015.
• Demonitisation which declared 86% of currency notes all in 500 and 1000 denominations invalid in one go, is considered to be a failure by critics. Around 16000 crore (out of 15.44 lakh crore) returned to banks, whereas RBI had to spend * 21000 crore to carry out this massive exercise.
• The amended Benami Transactions (Prohibition) Act of 1988 in 2016 recorded provisional attachments in more than 1600 benami transactions involving benami properties valued at over 4300 crore.
Despite all the efforts, the black money problem in India is still unresolved and lot more needs to be done to tackle it. There should be appropriate legislative framework related to Public Procurement, Prevention of Bribery of foreign officials, Citizens’ Grievance Redressal, Whistle Blower Protection, UID Aadhar etc. Institutions dealing with illicit money shall be strengthened. Developing an Integrated Taxpayer Data Management System (ITDMS) and 360 degree profiling, setting up of Cyber Forensic Labs and Work Stations will also be helpful. As elections are one of the biggest channel to utilise the black money, there should be appropriate reforms to reduce money power in elections.
Black money severely affects the progress of a nation and generate economic and social imbalance. It is a fight that no government can fight alone. The people also must be cooperative and vigilant to fight against any kind of financial fraud or illegal activities.
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