UNACCOUNTED WEALTH (BLACK MONEY)

UNACCOUNTED WEALTH (BLACK MONEY)

 

 

 

UNACCOUNTED MONEY (BLACK MONEY)

 

      I.Definitions:

  1. Unaccounted for and untaxed cash generated by dealings in a Black Economy, Black Market or Organised Crime. [ Holders of black money try to convert it into legitimate/clean/white money through Money Laundering].
  2. Untaxed money earned unofficially or illegally
  • Money circulating in the Black Economy in payment for goods and services.
  1. Finance.com/Dictionary
  • Money circulating in the Black economy in payment for goods and services.
  • Illegal trading in officially controlled goods, currency and exchange
  • Illicit parallel / secondary Market
  1. My Definition
  • Cash (local/ Foreign) and / or Goods/ Assets ( moveable/ immovable) held within or outside the country,
  •                 By Individuals/Firms/Corporates/Institutions, etc.
  •                     Which are not disclosed by them in their Books of Accounts, Statements/ Returns, etc. as prescribed by Relevant Laws/                             Rules/Regulations/Authorities

     

     II.Sources / Origin of Black Money

  • Corruption
  • Business ( within India) and Business ( outside India –Export/Imports)

                 < non declaration of production

                   < Over invoicing

                    < under invoicing

  • Smuggling

                   < goods

                    < Currency

  • Illegal Activities

                     < Drugs, Narcotics, Liquor

                      < Arms, Ammunition

                       < Goods

  • Real Estate

       <   Transactions reported to statutory Authorities are much less than  Contracted values                                                 

                  

         III. Size / Quantum of Black Money

  • In an article Ritu Raj Kalra  mentions that economists put the parallel economy at 3% of GDP in the 1950’s to 5 % today
  • In the book ‘ The Black Economy in India’ ( Penguin 1999), Economist Arun Kumar, mentions the country lost US$ 150 Billion in Gold Imports and US$ 100 Billion in Capital flight since Independence.
  • Other estimates the money held in Swiss Banks by Politicians, Businessmen, Officials and others at Rs. 1 Trillion (US$1456 billion).

 

       IV. Impact on Economy (A)

  •           Loss of Revenue

                        < Taxes / Duties, etc.

                        <Leads to Higher Tax Rates

                        < Leads to Less Spending on Development Activities

                               ...  Industrial

                                ...  Infrastructure

                                  ...  Social – Health  -   Education   --   Well Being

  • Those paying Taxes are required to shoulder Greater Cost of

                       < Development

                        < Governance

                         < Defence/ Security

                         Including to those not paying taxes

  • Burden of Taxes on poor people / Fixed income people becomes unbearable
  • Additional Expenditure needed to Detect/ Recover unpaid / undeclared Taxes/ Revenues ( like Manpower, Security, Legal Costs, etc.).

 

  • V. Impact on Economy (B)
  • Impacts on Government Financial Management
  • Deficit Financing
  • Internal / External Borrowings which leads to high Interest/ repayment costs
  • Which also leads to adherence to Lenders Terms & Conditions not to our liking
  • Increases cost of investment to create Assets
  • Leads to higher Inflation Rates
  • Affects the Balance of Trade and Balance of Payments position

 

  • VI. Impact on People
  • High level of Inflation increases the burden on poor/ fixed income people
  • Even essential items become beyond the reach of common people
  • Which further leads to poor nutrition
  • And therefore to poor health and well being
  • Impacts the affordability of minimum Housing requirements
  • Impacts the educational level of the Poor/Fixed Income people leading to illiteracy / under education
  • People with Black Money have greater resources to over come the above problems and therefore enjoy better Standards of Living

     

     VII. Cascading Effects

  • Induces further Non-payment of taxes/ duties and Non-Reporting of Assets
  • Increases Corruption

     

     VIII. Remedial Measures

  • The Tax Laws needs to be Simplified so that there is Less of Ambiguity and Greater Clarity
  • ( Tag: Please read a detailed article on Tax Reforms at www.kaushikvichar.com)
  • Better Collection / Verification/ Detection of Taxes using latest Technological Tools
  • The Tax Rates to be kept Reasonable to Induce full compliance
  • Faster disposal of Disputes/ Cases by the Authorities/ Courts / Tribunals etc.
  • Stringent / Deterrent Punishment of the Guilty
  • Avoidance of unnecessary Litigation
  • Reducing/ Eliminating of Exemptions / Subsidies etc. to those who can afford
  • Streamlining of Administrative Procedures for Sanction/ Approvals/ Permits, etc. by using latest Computer and other Technologies
  • The Man Power of the Government should be used for better and closer Monitoring/ Inspection/ verification/ Detection of proper Compliance with extant Laws
  • Reducing External / Internal Borrowings
  • Demonetisation of the Indian Currency
  • All Tax Payers/ Institutions/ Organisations/ etc should submit a Balance Sheet of their Assets & Liabilities
  • A unique identity number should be given to all Individuals as well as Corporates, Companies, Firms, Institutions, Trusts, NGOs, Political parties, etc. The AADHAR Number is a good concept which should be strengthened and universalised by suitable legislation.
  • All purchase and sales transactions above a certain value should be linked to this number.
  • The Balance Sheet of everyone should be automatically verified to ensure that all transactions have been included.
  • All lands should be surveyed minutely and ownership identified as to whether they belong to the Government or to the private person/ Institution. They should also be given unique identifiable numbers. Whenever a land is sold and bought or ownership is transferred this unique identity number of the land should also be mentioned along with the AADHAR numbers of the seller and purchaser.

 

 

 IX.PROFORMA INCOME EXPENDITURE STATEMENT

        Income                                                                              Expenditure

          Salary                                                                           Living expenses

         Pension                                                                          Repayment of Loans

         Interest                                                                          Payment of Interest on Loans

         Dividends                                                                       Purchase of Immovable Property

         Capital Gains                                                                  Purchase of Movable Property

         Other Incomes                                                                Purchase of Gold, Silver, Jewellery

          Loans taken – from Banks/Institutions                              Loans given                                                                                               

                                                                                              Investments

          Sale of Movable/Immovable assets                                  Other Expenses

 

         X. PROFORMA BALANCE SHEET

 

                             LIABILITIES                                                                     ASSETS

                                                      Previous yr   Present Yr                                                             Previous yr   Present Yr         

 

               Loans Taken    -  from Banks                                                    Cash

                                      - From others                                                   Deposit- Banks/Institutions/etc

               Capital   (in the case of Cos,firms)                                             Loans given

                                                                                                              Investments

                                                                                                                -Shares/Mutual Funds/Etc

                                                                                                               - Movable properties

                                                                                                                 -Immovable Properties

                                                                                                                  - Gold/Silver/Jewellery

                                                                                                                      -Others

To make a sustained impact on the creation of unaccounted wealth apart from the above the following measures also need to be taken:

  • Changes in Electoral System
  • Changes in the Judicial System
  • Changes in the Constitution
  • Reduction / elimination of spending on wasteful projects

Author

Kaushik Vichar

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