Black money is unaccounted money, illegally acquired wealth or other assets made through accepting bribery or other morally depraved acts. It is not just cash stashed at hidden places in the house or in benami accounts. It is in various forms like shares, bonds, securities, or other forms of instruments. It may be in the form of real estate-houses, shops, plot or other assets like cars. It may be in the form of gold, silver, diamonds or jewellery. It is believed that there is a huge amount of black money in India, estimated to be 200 million crores. It is also said that in our country over 200 crore rupees of black money is created every year. This reflects the magnitude of black money market in India. This also bears testimony to the amount of corruption prevailing in the country and the illegal activities being carried out. The biggest means of creating black money is avoidance of income tax and sales tax. Most of the businessmen never show the actual income they earn. They either never maintain any books of account or also keep false accounts to be shown to the authorities. As a result, the tax which is due to them is never paid. But the money they make out of their business keeps on accumulating with them.
After a period of time when their wealth increases to huge amounts, they cannot show where this money has come from. This is black money. While shopping, most of us never ask for a bill from the shopkeeper or the dealer. We never realise its consequences. Thousands of crores of rupees in sale tax is avoided because of absence of billing. Many dealers do not deposit the sales tax collected from the customers with the sales tax authorities. This is evasion of sales tax. The government has introduced the system of Value Added Tax (VAT) whereby the sellers of goods are taxed for the value added. But even here, the actual sale shown by the dealers is much less than what actually is. It is believed that in export dealings the billing is inflated by an average of 20 per cent. This amount goes into the pocket of the dealer without payment of any tax this amount taken together runs into hundreds of crores of rupees every year. This is nothing but black money. The other means through which large amount of black money is created is through illegal trades. All income that is received because of smuggling of gold, brown sugar, narcotics and other goods which cannot be sold is black money.
The cost of these goods is so high that dealing in them makes billions of rupees. Since the dealings are illegal, the money is not genuine earning but black or illegal wealth. There are international smuggling rackets which facilitate this kind of trade. India is supposed to be on the transit route for these kinds of goods coming from West Asia to South East Asia or vice-versa. Then there is smuggling of goods on the borders, viz. the borders between India and Pakistan, between India and Nepal, India and Bangladesh and India and Myanmar. Despite a tight vigil by Border Security Force, goods worth crores of rupees are smuggled from and into India everyday. The smugglers have millions of rupees as black money. Politicians in India have a large amount of black money. Most of them have assets worth crores of rupees-much more than their known sources of income. Cases are pending in courts against many of them on charges of having acquired these assets by illegal means.
The ministers while in power collect money, mainly from big businessmen for allotment of petrol pumps, plots of commercial land, licenses for doing particular business like liquor contracts, setting up Special Economic Zones, etc. In their tenure they accumulate several crores of rupees. Nobody checks them though everybody knows it. The cases filed against them yield no result.
The executive classes including the bureaucrats are the other class of people who have accumulated black money by taking bribes. Some of the bureaucrats who have been under the radar of income tax authorities were caught with properties and other assets, including cash of crores of rupees. Our executives and bureaucrats are also having hundreds of crores of rupees as black money. The black money is illegally acquired money. A large part of it is avoided tax. Thousands of crores of rupees which should have gone to the government coffers go to the personal accounts of black marketeers. If the government had received this money it would have used it to take up new projects of development or would have completed the ongoing projects in shorter time. The government would have built new hospitals, schools, colleges, roads, set up more industries, etc. thus, the black marketeers have blocked the country’s development for their personal greed. The bureaucrats and politicians who have accepted bribes have made huge money for them, and they have encouraged favouritism, making allotments to undeserving people. This does not augur well for society.
Our country is the greatest democracy in the world. It upholds the values of fairness and quality. Such favouritism and pick and choose for bribery and gratification is against the principles of democracy. Black money is docile money. It does not play any economic function. Thousands of crores of rupees lie idle in lockers and benami accounts making no contribution to the development of the country. India, at the threshold of fast economic development, needs huge amount of capital. The government funds are short because of tax avoidance and other corrupt practices by the hoarders of black money. If the black money reaches the government, there will be faster development. Some people believe that the black money in India is a parallel economy worth thousands of millions of rupees. It is also performing an important economic function. This money creates demand for goods and services helping the industry and producers of services.
Lying in bank accounts whether in benami or other accounts, this money is utilized by banks for lending purposes to needy businessmen. Despite these arguments, one has to say that the accumulation of black money is a poor reflection on our society. Corruption and tax avoidance must be dealt with a heavy hand so that the dues to the government reach it and are utilized for the benefit of the society.
IMPORTANCE OF THE PROJECT
IMPORTANCE OF THIS PROJECT :
We all know that black money is being generated by tax evasion through unreported/shadow/hidden accounts and also by corruption and fake currency.
Tax evasion is being caused by the indirect result of high tax component on commodities and services, multiple taxes, complex tax structures, cumbersome accounting and auditing. In the present economic system, there is huge money in physical form (bills/notes). For example in India, there is an estimated physical currency of 10,72,020 crores with the public out of total money supply of 77,25,560 crores excluding fake currency in the economic system (As at 2012 – June 29 ). This physical currency is about 13.8% of the total money supply in the economic system. The percentage of physical money may vary from country to country. There are reported to be plenty of cases of lootings, robberies, homicides, extortions, ransoms, and bribes across the world in almost all nations because of this huge money in physical form. This physical money, in huge amounts, is being transferred from one hand to the other eluding all tax nets in transactions of commodities or goods and transforming into black money.
The huge accumulation of money in few pockets in the form of black money is making the cyclic circulation of money in the economic system to be erratic (some times more cycles per year and some times less cycles per year with stagnation/non usage of money causing economic recession at some times. This black money is also being used as main raw material in the proliferation of corruption. The unaccounted GDP is said to be too heavy and varies from country to country depending upon the corruption level that exists in that country. In addition to this black money, there are also huge amounts of fake currency that has contaminated the genuine currency. The combined effect of the black money and fake currency is playing havoc with economies of many countries.
To eliminate black money it is imperative to evolve a new tax system that will not allow tax evasion and at the same time, the tax collections for the Government and tax compliance by citizens should be made at absolutely free of cost, easy and involuntary without compromising on tax revenues. It is also necessary to have new monetary system which restricts the physical currency to just 0.3% of the total money supply in the economic system. Thus TOP Tax system is a combination of a new tax system, a new monetary system and a new banking system aimed at removing black money, corruption and fake currency at one go.
Significance and effects of black money in India
It encourages people to be dishonest, perhaps even create a rise in the number of criminals: When a person realizes that he has been able to evade tax, he gets hooked, much like getting addicted to a drug. He will generate more black money and find ways and means to hoard more & more illegal wealth in order to become richer. There will be a drastic drop in the quality of what is offered in terms of goods & services: When a builder takes half the payment in cash to stash it away illegally, it means he will have less legitimate money to utilize for the construction. This could mean the use of poor quality cement and sloppy work. The revenue generated for the Govt. will spiral downwards: By taking tax from the people, the Govt. is obtaining revenue to operate the administration. With more people evading tax and creating black money, the Govt. will not have enough finances to manage the country as a whole.
This will subsequently mean a higher tax will have to be imposed: Due to less revenue going into its coffers, the Govt. will have to increase the taxes it imposes on the citizens. Higher professional tax, higher income tax, higher VAT…it may even have to introduce some more forms of taxation. Inflation will be on the rise: With an imposition of more & higher taxes, the prices of goods and services will increase. We have already seen this when this year’s budget announced high taxes and a whole lot of stuff got new price tags, whether it is a hotel room, a hair cut at a saloon, or a garment. Properly formulated monetary policies will go for a toss: The Govt. will have to do a re-think on the monetary policy of the country to make adjustments for the increased interest rates & hike in inflation.
REVIEW OF LITERATURE
The Financial Action Task Force (FATF) is an inter-governmental body whose purpose is the development and promotion of policies to combat money laundering and terrorist financing. It is the body that sets and monitors international standards for anti-money laundering regulations. The FATF has
defined “money laundering” as the processing of criminal proceeds to disguise their illegal origin in order to legitimise the ill-gotten gains of crime. PLACEMENT LAYERING INTEGRATION PLACEMENT LAYERING INTEGRATION INTEGRATION INTEGRATION JUSTIFICATION INVESTMENT •Change of Currency
•Change of Denominations
•Transportation of Cash
•Withdrawals in Cash
•Cash Deposits in Other Bank Accounts
•Split and Merge Between Bank Accounts
•Creating Fictitious Loans, Turnover/Sales, Capital Gains, Deeds, Contracts, Financial Statements •Disguise Ownership of Assets
•Criminal Funds Used In Third Party Transactions
•Liquidity – Cash at Hand
Why combat money laundering?
Criminals accumulate significant sums of money by committing crimes such as drug trafficking, human trafficking, theft, investment fraud, extortion, corruption, embezzlement and tax fraud. Money laundering is a serious threat to the legal economy and affects the integrity of financial institutions. It also changes the economic power in certain sectors. If left unchecked, it will corrupt society as a whole. Fighting money laundering serves several purposes. Money Laundering Awareness Handbook for Tax Examiners and Tax Auditors 2009
The social importance
Crime causes tangible and intangible damage to third parties, individuals and society as a whole. Money laundering can result in reducing the public’s confidence in certain professions such as lawyers, accountants and notaries and economic sectors such as real estate, hospitality and banks and other financial institutions. Investing the proceeds of crime may also distort competition between businesses and entrepreneurs. Money laundering allows
the criminal to start, continue and expand activities in legitimate sectors of the economy. It may create a perception that crime pays and may also have a stimulating effect on our youth starting a criminal career. To identify tax crimes
Unusual transactions can be an indication of tax crimes in the past and can lead to the identification of those involved. To identify other crimes and criminals
Taxing the income of criminals according to tax rules alone will not lead to the identification of potential money laundering. It will not stop crime from happening or from being profitable. The detection of unusual transactions may assist in identifying criminals and their illegal activities. Sharing information with law enforcement authorities can lead to the start of a criminal investigation. To locate and confiscate criminal assets
Identifying unusual transactions can provide insight into the flow of money and the destination of laundered criminal proceeds into assets such as real estate, vehicles, yachts and bank accounts. This will assist law enforcement authorities in seizing those assets during a criminal investigation.
II.OPTION – a financial instrument:
Option is a financial instrument whose value depends upon the value of the underlying assets. Option itself has no value without underlying assets. Option gives the right to the buyer either to sell or to buy the specified underlying assets for a particular price (Exercise / Strike price) on or before a particular date (expiration date). If the right is to buy, it is known as “call option” and if the right is to sell, it is called as “put option”. The buyer of the option has the right but no obligation either to buy or to sell. The option buyer has to exercise the option on or before the expiration date, otherwise, the option expires automatically at the end of the expiration date. Hence, options are also known as contingent claims. Such an instrument is extensively used in share markets, money markets, and commodity markets to hedge the investment risks and acts as financial leverage investment. Option is a kind of derivative instruments along with
forwards, futures and swaps, which are used for managing risk of the investors. Though derivatives are theoretically risk management tools and leveraged investment tools, most use them as speculative tools. Though the derivatives were very old as early as 1630s, the exchange- traded derivative market was introduced during 1970s. 1973 marked the creation of both the Chicago Board Options Exchange and the publication of the most famous formula in finance, the option-pricing model of Fischer Black and Myron Scholes. These events revolutionized the investment world in ways no one could imagine at that time. The Black-Scholes model, as it came to be known, set up a mathematical framework that formed the basis for an explosive revolution in the use of derivatives. Chicago Board Options Exchange (CBOE) was founded as first United States of America (USA) options exchange and trading begins on standardized, listed options. April 26, the first day of trading sees 911 contracts traded on 16 underlying stocks. During 1975, computerized price reporting was introduced and Options Clearing Corporation was formed. The Black-Scholes model was adopted for pricing options in CBOE. In the year 2005, CBOE’s options contract volume was an all-time record of 468,249,301 contracts (up 30% over the previous year), and the notional value of this volume was more than US$1.2 trillion. In 1983, the Chicago Board Options Exchange decided to create an option on an index of stocks. Though originally known as the CBOE 100 Index, it was soon turned over to Standard and Poor’s and became known as the S&P 100, which remains the most actively traded exchange-listed option. Options have the most peculiar property of capping the downside risk at the same time keeping the unlimited upside potential. Furthermore, the importance of the option trading and the requirement of its correct pricing are far more critical and useful in decision making, which are narrated below. First, prices in an organized derivatives market reflect the perception of market participants about the future and lead the prices of underlying to the perceived future level. The prices of derivatives converge with the prices of the underlying at the expiration of the derivative contract. Thus derivatives help in discovery of future as well as current prices. Second, the derivatives market helps to transfer risks from those who have them but may not like them to those who have an appetite for them. Third, derivatives, due to their inherent nature, are linked to the underlying cash markets. With the introduction of derivatives, the underlying market witness higher trading volumes, because more players participated who would not otherwise participate for lack of an arrangement to transfer risk. Fourth, the speculative trades shift to a more controlled environment of derivatives market. In the absence of an organized derivatives market, speculators trade in the underlying cash markets. Margining, monitoring and surveillance of the activities of various participants become extremely difficult in these kinds of mixed markets.
Fifth, an important incidental benefit that flows from derivatives trading is that it acts as a catalyst for new entrepreneurial activity. The derivatives have a history of attracting many bright, creative, well-educated people with an entrepreneurial attitude. They often energize others to create new businesses, new products and new employment opportunities, the benefit of which are immense. Finally, derivatives markets help increase savings and investment in the long run. Transfer of risk enables market participants to expand their volume of activity. In India, derivatives trading was introduced Index Futures Contracts from June 2000 and stock option trading in July 2001 grown very fast to reach an average daily turnover of derivatives at NSE, at Rs. 33,745 crores during May 2006 as against cash markets turnover of about Rs. 9202.15 crores (as on May 2006), which indicates the importance of the derivatives. Normally, the derivative turnover is three to four times the cash market turnover in India. Option, being one of the derivatives is a unique type of hedging tool. Black – Scholes formula after mesmerize the western countries also entered into in Indian option market.
ANALYSIS OF DATA
ANALYSIS OF DATA
INDIAN BLACK MONEY DEPOSITED IN SWISS BANKS – WIKILEAKS REPORT December 18, 2011 at 5:52am
WikiLeaks posted in the website that –
Indian money in Swiss Banks is more than any other nationality. The list regarding their names, amount and other details is as per the list herebelow. The major share is from India. The source of income is from project hedge, illegal share in stock market, drug deal, fake project. The deposits in Swiss Bank was started from early 70s. Major share of Indian black money routed from Pakistan. The Indian government needs to be more aggressive in tracking the black money stashed in foreign banks since Indians depositing money in foreign banks is debasing the rupee.
The list as published by Wikileaks is in the Picture attached alongwith this note !!!
$1.4 Trillion India’s Black Money Stashed in Swiss Banks
According to the data provided by the Swiss bank, India has more black money than rest of the world combined.
India topping the list with almost $1500 Billion black money in swiss banks, followed by Russia $470 Billion, UK $390 Billion, Ukraine $100 Billion and China with $96 Billion.
The money which belongs to the nation and it’s citizens, is stashed in the illegal personal accounts of corrupt politicians, IRS, IPS officers and industrialists. An amount which is 13 times larger than the nations foreign debt. Every year this amount is increasing at a rapid speed but the Indian government seem to be silent over this matter from a very long time. The total black money accounts for 40% of GDP of India, if all the money comes back to India then that could result in huge growth burst for India.
By bringing back the black money back to the country there is so much which can be done for the development of the nation and the people who live below poverty line. India will also be able to clear all their foreign debts in 24Hrs. Even if all the taxes are abolished, the government can maintain the country easily for 30 years.
It’s been found that about 80 thousand people travel to Switzerland every year of whom around 25 thousand travel frequently. Those travelling on regular basis must be doing it for some reason.
The Indian government needs to take some serious steps to get the money back to India which is stashed in Swiss banks. They should work to find out the names of account holders in Swiss banks and also pressurize Swiss bank to get the black money back to the country. This has also become a matter of pride of nation and if the government still keeps silence about this issue then they will only be making themselves a laughing stock for the entire world.
Many Indian companies and rich Indians, such as cricketers and filmstars, were using tax havens line for banking.
US government is the only government which is serious about ending tax evasion and other illegal activities surrounding banking in tax havens. Swiss banks have started providing information to US authorities of American citizens who hold accounts with them.
The Indian Government should also take lesson from the US Government action taken against Black Money and corruption. India needs to take serious action against these issues as they are a great threat to the national security and the nation’s economy.
If action is not taken very fast, this booming Black Money Demon will eat away the nation’s economy and will cripple the health of this great nation forever !!!
In India, Black money refers to funds earned on the black market, on which income and other taxes has not been paid. The total amount of black money deposited in foreign banks by Indians is unknown. Some reports claim a total exceeding US$1.4 trillion are stashed in Switzerland. Other reports, including those reported by Swiss Bankers Association and the Government of Switzerland, claim that these reports are false and fabricated, and the total amount held in all Swiss banks by citizens of India is about US$2 billion. In February 2012, the director of the Central Bureau of Investigation said that Indians have $500 billion of illegal funds in foreign tax havens, more than any other country. In March 2012, the Government of India clarified in its parliament that the CBI Director’s
statement on $500 billion of illegal money was an estimate based on a statement made to India’s Supreme Court in July 2011. In early 2011, several reports indian media alleged swiss Bankers Association officials to have said that the largest depositors of illegal foreign money in Switzerland are Indian. These allegations were later denied by Swiss Bankers Association as well as the central bank of Switzerland that tracks total deposits held in Switzerland by Swiss and non-Swiss citizens, and by wealth managers as fudiciaries of non-Swiss citizens. James Nason of Swiss Bankers Association in an interview about alleged black money from India, suggests “The (black money) figures were rapidly picked up in the Indian media and in Indian opposition circles, and circulated as gospel truth. However, this story was a complete fabrication. The Swiss Bankers Association never said or published such a report. Anyone claiming to have such figures (for India) should be forced to identify their source and explain the methodology used to produce them.” In August 2010, the government revised the Double Taxation Avoidance Agreement to provide means for investigations of black money in Swiss banks. This revision, expected to become active by January 2012, will allow the government to make inquiries of Swiss banks in cases where they have specific information about possible black money being stored in Switzerland. In 2011, the Indian government received the names of 782 Indians who had accounts with HSBC. As of December, 2011, the Finance Ministry has refused to reveal the names, for privacy reasons, though they did confirm that no current Members of Parliament are on the list. In response to demands from the Bharatiya Janata Party (BJP) opposition party for the release of the information, the government announced on 15 December that, while it would not publish the names, it would publish a white paper about the HSBC information. According to White Paper on Black Money in India report, published in May 2012, speaking at the inauguration of first Interpol global programme on anti-corruption and asset recovery said: “It is estimated that around 500 billion dollars of illegal money belonging to Indians is deposited in tax havens abroad. Largest depositors in Swiss Banks are also reported to be Indians”. In a hint at scams involving ministers, Singh said: “I am prompted to recall a famous verse from ancient Indian scriptures, which says – यथा राजा तथा प्रजा. In other words, if the King is immoral so would be his subjects” The CBI Director later clarified
in India’s parliament that the $500 billion of illegal money was an estimate based on a statement made to India’s Supreme Court in July 2011. After formal inquiries and tallying data provided by banking officials outside India, the Government of India claimed in May 2012 that the deposits of Indians in Swiss banks constitute only 0.13 per cent of the total bank deposits of citizens of all countries. Further, the share of Indians in the total bank deposits of citizens of all countries in Swiss banks has reduced from 0.29 per cent in 2006 to 0.13 per cent in 2010.
FINDINGS AND SUGGESTIONS
FINDINGS AND SOLUTIONS:
Swiss bank revealed India has more money than rest of the world.
This is so shocking.. ..If black money deposits was an Olympics event.. India would have won a gold medal hands down. The second best Russia has 4 times lesser deposit. U.S. is not even there in the counting in top five! India has more money in Swiss banks than all the other countries combined!
Recently, due to international pressure, the Swiss government agreed to disclose the names of the account holders only if the respective governments formally asked for it.. Indian government is not asking for the details… ..no marks for guessing why?
We need to start a movement to pressurize the government to do so! This is perhaps the only way, and a golden opportunity, to expose the high and mighty and weed out corruption!
Please read on..and forward to all the honest Indians to.. like somebody is forwarding to you… and build a ground-swell of support!for action !
Is India poor, who says? Ask the Swiss banks. With personal account deposit bank of $1,500 billion in foreign reserve which have been misappropriated, an amount 13 times larger than the country’s foreign debt, one needs to
rethink if India is a poor country?
DISHONEST INDUSTRIALISTS, scandalous politicians and corrupt IAS, IRS, IPS officers have deposited in foreign banks in their illegal personal accounts a sum of about $1500 billion, which have been misappropriated by them. This amount is about 13 times larger than the country’s foreign debt. With this amount 45 crore poor people can get Rs 1,00,000 each.
This huge amount has been appropriated from the people of India by exploiting and betraying them. Once this huge amount of black money and property comes back to India , the entire foreign debt can be repaid in 24 hours. After paying the entire foreign debt, we will have surplus amount, almost 12 times larger than the foreign debt. If this surplus amount is invested in earning interest, the amount of interest will be more than the annual budget of the Central government. So even if all the taxes are abolished, then also the Central government will be able to maintain the country very comfortably.
Some 80,000 people travel to Switzerland every year, of whom 25,000 travel very frequently. ‘Obviously, these people won’t be tourists.. They must be travelling there for some other reason,’ believes an official involved in tracking illegal money.. And, clearly, he isn’t referring to the commerce ministry bureaucrats who’ve been flitting in and out of Geneva ever since the World Trade Organisation (WTO) negotiations went into a tailspin!
Just read the following details and note how these dishonest industrialists, scandalous politicians, corrupt officers, cricketers, film actors, illegal trade and protected wildlife operators, to name just a few, sucked this country’s wealth and prosperity. This may be the picture of deposits in Swiss banks only. What about other international banks ?
Black money in Swiss banks – Swiss Banking Association report, 2006 details bank deposits in the territory of Switzerland by nationals of following countries :
INDIA $1,456 BILLION
RUSSIA $470 BILLION
U.K. $390 BILLION
UKRAINE $100 BILLION
CHINA $96 BILLION
Now do the math’s – India with $1,456 billion or $1.4 trillion has more money in Swiss banks than rest of the world combined. Public loot since 1947.
Can we bring back our money ? It is one of the biggest loots witnessed by mankind – the loot of the Aam Aadmi (common man) since 1947, by his brethren occupying public office. It has been orchestrated by politicians, bureaucrats and some businessmen.
The list is almost all-encompassing. No wonder, everyone in India loots with impunity and without any fear. What is even more depressing in that this ill-gotten wealth of ours has been stashed away abroad into secret bank accounts located in some of the world’s best known tax havens. And to that extent the Indian economy has been stripped of its wealth. Ordinary Indians may not be exactly aware of how such secret accounts operate and what are the rules and regulations that go on to govern such tax havens. However, one may well be aware of ‘Swiss bank accounts,’ the shorthand for murky dealings, secrecy and of course pilferage from developing countries into rich developed ones.
In fact, some finance experts and economists believe tax havens to be a conspiracy of the western world against the poor countries. By allowing the proliferation of tax havens in the twentieth century, the western world explicitly encourages the movement of scarce capital from the
developing countries to the rich. In March 2005, the Tax Justice Network (TJN) published a research finding demonstrating that $11.5 trillion of personal wealth was held offshore by rich individuals across the globe.
The findings estimated that a large proportion of this wealth was managed from some 70 tax havens. Further, augmenting these studies of TJN, Raymond Baker – in his widely celebrated book titled ‘Capitalism’ s Achilles Heel: Dirty Money and How to Renew the Free Market System’ – estimates that at least $5 trillion have been shifted out of poorer countries to the West since the mid-1970.
It is further estimated by experts that one per cent of the world’s population holds more than 57 per cent of total global wealth, routing it invariably through these tax havens.
How much of this is from India is anybody’s guess …???? if India is doing like this the annual tern over will be less and our market will have to close down (BSE\NSE)
we have to trace out the black money when the polities have kept ? where there they use ? but they don’t have correct tax details . all are illegal only
Proposals to prevent Indian black money
Even in colonial India, numerous committees and efforts were initiated to identify and stop underground economy and black money with the goal of increasing the tax collection by the British Crown government. For example, in 1936 Ayers Committee investigated black money from the Indian colony. It suggested major amendments to protect and encourage the honest taxpayer and effectively deal with fraudulent evasion. Current Proposals
In its white paper on black money, India has made the following proposals to tackle its underground economy and black money. Reducing disincentives against voluntary compliance.Excessive tax rates increase black money and tax evasion. When tax rates approach 100 per cent, tax revenues approach zero, because higher is the incentive for tax evasion and greater the propensity to generate black money. The report finds that punitive taxes create an economic environment where economic agents are not left with any
incentive to produce. Another cause of black money, the report finds is the high transaction costs associated with compliance with the law. Opaque and complicated regulations are other major disincentive that hinders compliance and pushes people towards underground economy and creation of black money. Compliance burden includes excessive need for compliance time, as well as excessive resources to comply. Lower taxes and simpler compliance process reduces black money, suggests the white paper. Economic liberalisation
The report suggests that non-tariff barriers to economic activity such as permits and licences, long delays in getting approvals from government agencies are an incentive to proceed with underground economy and hide black money. When one can not obtain a licence to undertake a legitimate activity, the transaction costs approach infinity, and create insurmountable incentives for unreported and unaccounted activities that will inevitably generate black money. The successive waves of economic liberalisation in India since 1990s have encouraged compliance and taxes collected by the government of India have dramatically increased over this period. The process of economic liberalisation must be relentlessly continued to further remove underground economy and black money, suggests the report. Reforms in vulnerable sectors of the economy:
Certain vulnerable sectors of Indian economy are more prone to underground economy and black money than others. These sectors need systematic reforms. As example, the report offers gold trading, which was one of the major sources of black money generation and even crime prior to the reforms induced in that sector. While gold inflows into India have remained high after reforms, gold smuggling is no longer the menace as it used to be. Similar effective reforms of other vulnerable sectors like real estate, the report suggests can yield a significant dividend in the form of reducing generation of black money in the long term. The real estate sector in India constitutes about 11 per cent of its GDP. Investment in property is a common means of parking unaccounted money and a large number of transactions in real estate are not reported or are under-reported. This is mainly on account of very high levels of property transaction taxes, commonly in the form of stamp duty. High transaction taxes in property are one of the
biggest impediments to the development of an efficient property market. Real estate transactions also involve complicated compliance and high transactions costs in terms of search, advertising, commissions, registration, and contingent costs related to title disputes and litigation. People of India find it easier to deal with real estate transactions and opaque paperwork by paying bribes and through cash payments and under-declaration of value. Unless the real estate transaction process and tax structure is simplified, the report suggests this source of black money will be difficult to prevent. Old and complicated laws such as the Urban Land Ceiling Regulation Act and Rent Control Act need to be repealed, property value limits and high tax rates eliminated, while Property Title Certification system dramatically simplified. Other sectors of Indian economy needing reform, as identified by the report, include equity trading market, mining permits, bullion and non-profit organisations. Creating effective credible deterrence:
Effective and credible deterrence is necessary in combination with reforms, transparency, simple processes, elimination of bureaucracy and discretionary regulations. Credible deterrence needs to be cost effective, claims the report. Such deterrence to black money can be achieved by information technology (integration of databases), integration of systems and compliance departments of the Indian government, direct tax administration, adding data mining capabilities, and improving prosecution processes. Supportive measure:
Along with deterrence, the report suggests public awareness initiatives must be launched. Public support for reforms and compliance are necessary for long term solution to black money. In addition, financial auditors of companies have to be made more accountable for distortions and lapses. The report suggests Whistleblower laws must be strengthened to encourage reporting and tax recovery. Amnesty:
Amnesty programmes have been proposed to encourage voluntary disclosure by tax evaders. These voluntary schemes have been criticized on the grounds that they provide a premium on dishonesty and are unfair to honest taxpayers, as well as for their failure to achieve the objective of
unearthing undisclosed money. The reporT suggests that such amnesty programmes can not be an effective and lasting solution, nor one that is routine. International enforcement:
India has Double Tax Avoidance Agreements with 82 nations, including all popular tax haven countries. Of these, India has expanded agreements with 30 countries which requires mutual effort to collect taxes on behalf of each other, if a citizen attempts to hide black money in the other country. The report suggests that the Agreements be expanded to other countries as well to help with enforcement. Modified Currency Notes:
Government printing of such legal currency notes of highest denomination i.e.; 1000 (US$15) and 500 (US$7.70) which remain in the market for only 2 years. After a 2-year period is expired there should be a one year grace period during which these currency notes should be submitted and accepted only in bank accounts. Following this grace period the currency notes will cease to be accepted as legal tender or destroyed under the instructions of The Reserve Bank of India. As a consequence turning most of the unaccountable money into accountable and taxable money.
For long Indian economy has witnessed various phases and scales of development and in present scenario we have become one of the world’s fastest growing economies going neck to neck with countries like China. Despite this we are on the list of one of most corrupt nations marked by lame reforms and red tapism. Every sector in one or the other way has faced a severe jolt due to continuous onslaught of corruption which has further evolved black money on a large scale. Although no sector can claim to be completely free from black money but the sector which is battling the malice of black money on large scale is real estate. Some major reasons can be attributed for this one of them being the sector’s vast unorganisation till date and secondly that it still lacks the required reforms, checking laws
and policies to ensure legal flow of money within the by-lanes of real estate.Thus it is important to take the control of black money.