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Essay on “Black Money Impact on Economy” Complete Essay for Class 10, Class 12 and Graduation and other classes.

Black Money Impact on Economy

It is a well-recognized fact that there exists in India a parallel economy based entirely on black money transactions. Black money, also described as tainted money, has seeped into every walk of life and is posing a great threat to the stability of our real economy. The most unfortunate aspect is that it has come to be accepted as normal fact of life. People hardly feel say qualms of conscience while dealing with it. In their jaundiced eyes, the black appears to be bright and beautiful. The problem of tax-evasion and black money cannot merely be looked upon as an anti-social activity or an unlawful activity. It is rather, like a cancer in the country’s economy which, if not checked in time, will ruin the country’s economy. One of the worst consequences of black-money and tax-evasion-is their pernicious effect on the moral fiber of our society which puts a premium on dishonesty and shatters the faith of the common man in the dignity of honest labour and lawful living. Black money results in the functioning of a parallel economy in the country. The problem, therefore, needs immediate attention.

Illegal flow of money driven outside of our nation to foreign banks amounting to a huge estimation of $19 billion yearly as per recent official report would manifestly shatter the perception that India has been under impoverishment.

The Global Financial Integrity, an organization based at Washington claims that counterfeit money deposited into non Indian banks by the politicians, businessmen and celebrities from different fields in India since 1991 sums to a whopping estimation of RS 2,100,000 crores plundering the wealth of our country The GFI also adds that Indian economy has lost its monetary funds almost ranging from $450 billion to 1500 billion because of unaccounted flow of black money over the past decades after independence and a lump sum flowing into the accounts of banks in foreign every year. Major sources for this large acquirement in the banks outside India have been through tax evasion added to corruption and smuggling. 

Why is Unaccounted Money called as “Black”?

Any income or money garnered through illegal means that has been kept in the “dark” to be eluded from taxation is labeled as black since it has become impossible to have that income into the circular How of economic life. In other words, black money can be simply referred as pecuniary holdings of an individual, which has been possessed illegitimately. Listing a few sources for black money includes various activities and transactions such as hoarding, gambling, black marketing, trafficked dealings, underestimation of assets, duplicate income statement and so on. The economy in which black money flows has been related as De facto economy or parallel economy and the economic system in which the white money is revealed in relevant accounts, duly taxed and paid has been termed as de jure economy.

Multifarious Sources through which Black Money Hoarded

Up until now, corruption has been no doubt a diffused epidemic in the nation’s economy. In fact, black money and corruption invariably goes hand in hand. Tax evasion and hoarding are the unique means of unaccounted money growing enormously day by day in our country. Corruption not only multiplies, but has become a part and parcel of life in the civic and public affairs while the common man has to live with this meekly.

– Corruption in various ministries generally misusing the minister posts to take privilege of favouring for themselves or for members of the family or other considerations gainful for them.

– Corruptions by the state and central government officials through agents and in the form of indirect gifts.

– A huge hoarding for black money is in politics and election campaigns by political parties.

– Transactions in real estate business in which dealings of crores of money required and only small amount is being shown in white, right from the registration of the document, market value, underestimation, difference between original value and registered value multiplicatively.

– Investments in assets like gold, silver and antique collections whereas no records maintained.

– Another source of widespread account bungling is in the area of constructions and builders.

– Amusement get-together and extravagantly pay-out parties by business magnets showing inappropriate accounting.

– The most important arena being the film industry where crores of money hidden as black money.

– Realizations from agrarian produce by the landlords that benefit from exemption of taxable income in which no need, of record required.

– Importation of luxury cars from abroad by evading excise and customs duty. Hawala transactions that have gone unnoticed.

– Binami and overseas investments by politicians and big businessmen through several tax-free havens.

– Export and import transactions making under invoicing and malpractices in trade merchandizing.

– Massive evasion of excise duties by liquor lobbies. Scrap materials selling without any appropriate registers.

– Capitation fees, unreleased donations and minting money through management quota by the educational institutions not issuing genuine receipts.

– Professionals in the IT industry, medicine, legal, travel and tourism, hospitality sectors maintain no real records.

– A source of speed money for pushing files in a complex system of functioning in public sectors in the form of red tape maze and caverns of government rules and regulations.

– Major contracts in defense, power, road, telecommunications, railway projects and tenders in public sectors.

– Stock market scandals, project Costs manipulations, organ trafficking, under world mafia, public distribution systems, export incentives, rebates, and under invoicing claimed by dubious groups of companies, unauthorized gambling, lottery schemes, holiday resorts and social clubs, and abuse of grants, subsidies and concessions provided by the government.

Indian Black Money in the Swiss Bank

As confirmed by the Swiss bank, India has been the topper of the list in Stashing black money into the accounts of Swiss bank with nearly $1500 billion, the highest amount invested outside of any country amidst 180 countries of the world, followed by Russia $470 billion, UK $390 billion, Ukraine $100 billion and China with $96 billion. In an official note to the Indian government, the Swiss country has consented to reveal the particulars of the account holders in the Swiss bank for about 70 lakh crores provided with the Indian Government’s official inquiry for information about black money during 1947 and 2008, but Indian officials have nor been fascinated upon this issue since most of the investments have been garnered by politicians and big shots supporting the political leaders. It has been believed that the nation’s foreign debts would be cleared off 13 times, interest from these investments would be enough for India’s annual budget and India would no longer be a poor country. No need for taxation forever.

Alarming of the fact that Switzerland has been the safest tax-haven country, a revised Double Tax Avoidance Agreement (DTAA) signed between India and Switzerland in August 2010 would enable to exchange details on the tax evaders and this agreement would be crucial to unveil the details on unaccounted income laid away in the Swiss banks from January 2012. The Swiss government intends to have secrecy of the bank clients but not to protect them from paying taxes and no room for tax evasion in Switzerland according to the report by the Switzerland authorities. It further adds that Indian authorities would be informed of the details about tax fraud and tax evasion provided they have been able to furnish evidence for tax evasion by the Indians who hold accounts in the Swiss bank. With the reports coming forth about Indian account holders in tax havens such as Liechtenstein and the US government’s success in accessing the accounts in the Swiss bank by the Americans during the 2008 recession, Indian government has been initiating to have better terms in this context with the Swiss.

Causes for Multiplication of Black Money in Crores

Black money enormously upraises due to different causes. Some of those causes have been:

Complex Tax Structure

India at present being highly-taxing country, the major cause for black money accumulation is huge tax rate exerting the Indian common man and it has been ascertained that Indian Government has been imposing ruthless penalty just for honest and endeavored common man. Rules regarding taxation in our country are indeed complex in nature that an ordinary individual could not easily understand. Yet, honest assesses are not aware how to file tax returns. This may lead to tax evasion.

Intensity of Regulations

Numerous restrictions in public sectors in regard to controls, licensing and permit system in trades have paved the way for the evil of black money. The present licensing system contributes to corruption at all levels with import licenses dictating huge premium in the black market. At times, influential business Firms invest funds in obtaining quotas or import licenses excessively beyond their requirements in order to barter at huge cash premiums. Likewise, licenses in industrial manufacturing sector have been exchanged at extremely enhanced prices.

Corrupted Political Leaders and Bureaucrats

Huge black money arises from political activities such as election campaigns in which political parties spend beyond the election commission’s fixed ceiling that in turn pampering to corruption with the support of bureaucrats.

Illegal Activities

Important source of unaccounted money generates from illegal activities like large-scale smuggling of gold, diamond and numerous luxury products and, drug trafficking.

Declining Moral Practice to Pay Taxes

Overall declination in the moral and civic standards of the public may be the reason for tax evasion and black money hoarding.

Effects of Black Money on Indian Economy

Parallel economy in which unaccounted money circulates referring as black economy is an outcome of the menace of black money affecting the revenues through taxation by th6 government. From my perception, the following listing explores the impact of black money in India in different modalities.

Widening the Gap

The most significant impact is that the unfortunate disparity between the haves and the have-nots has been widened day-by- day resulting in economic instability. The Indian economy has been gravely shattered due to the huge corrupted wealth lying in the hands of the rich. With the overflowing one-sided income, the prices will be rising despite various attempts by the RBI to get them under control. As a result, the poor unable to afford for their daily living with the price hikes has become poorer whereas the rich has been richer.

Effecting Spikes of Inflation in the Economy

The upshot to this black money causing increasing rate of inflation has been evident. It has been excoriated that to greater extent black money hoarded in the coffers of tax evaders and black marketers encourages exuberant spending, which in turn creates excessive demand and price hiking. In Other words, when circulation of money exceeds the supply of goods and services in the economy, it would obviously lead to increasing inflation.

Venomous Circle of Corruption and Bureaucracy

The nerve root of corruption dwells in the process of elections in a democracy, like our country that necessitates the politicians to woo funds from bureaucrats (big businessmen and industrialists). Once capturing power these political leaders/ ministers are then beholden to these bureaucrats to change ordinances in favor of them. Thus, the circle of corruption and bureaucracy becomes completely politicians require money, bureaucrats afford the money for favors, politicians offers privileges changing regulations for their benefit, industrialists and business firms create money from these alterations and in return, these bureaucrats supply partial illegal funds to the political leaders to be elected once again.

Inequality Distribution of Income

Hidden money as black has a huge impact on worsening the income distribution system thereby sabotaging the fixed income class placing them in the lower rung of their income ladder who genuinely pay taxes though a few of them indulge in corrupt activities such as getting bribes, commissions, compensation, gifts, etc.

Channelizing Funds into Foreign Countries

Black money ensues in transferring illegal funds from India to foreign countries through underground channels. This supplanting can be carried out through violation of exchange regulations in such a manner like under-invoicing of exports and over-invoicing of imports paradoxically. Foreign exchange resources have become thus scarce with the country turning as a de facto loaner of capital to economically developed countries because of the hidden outflow of finance.

Black Money Influencing Terrorism

In fact, black money has been fueling terrorist attacks in a large scale thereby supporting terrorism. Funding has been necessary for any kind of scheme and terrorist activity requires huge amounts of funds and in India, black money is easily accessible to the terrorists since India is a secular country. For example, SIMI and Indian Mujahideen, an outfit that has been held accountable for the bomb blasts in Ahmedabad, Jaipur, and Delhi in 2008 acquires funds from Pakistan and they have been holding accounts in the banks in rural and urban areas in our country. Their identifications cannot be traced out as our intelligence bureau and Other agencies are not outfitted to the fullest extent. We would nor be able to combat terrorism unless we cut short the unfavorable black currency in our economy.

Emergence of Corrupted Professionals

Necessitating the protection and proliferation of the black money, an organization has been essential for service providing that consists of touters and brokers to deal with the forces of law and order, income tax advisers, or chartered accountants ,as black money laundering operators and this requirement leads to the outgrowth of professionals in the finance sector to take up corrupt practices.

Various Measures Implemented by the Government to Combat the Menace of Black Currency

To estimate the exact amount of black money dispersed in the country is not an easy task. However, marauds and searches have been undertaken by the Indian Income Tax department officials at various times, only unearthing the least part.

Following the recommendations by the WanChoo Committee established in 1971, enactment of the Taxation Laws Amendment Act of 1975 has brought on various legislative provisions to preclude tax-evasion and proliferation of unearthed black currency and stringent punishments have been provided for tax-evasion. A committee comprising experts called “Direct Tax Laws Committee” was appointed in June 1977 by the government to make simplification and rationalization of the direct tax laws since tax evasion cannot be controlled unless the tax regulations would be made simpler and rationalized. Furthermore, if the procedure of returns filing has been made simpler it would be easier for a layman to file the IT returns by himself without needing any support of lawyers and experts.

Introduction of the voluntary disclosure scheme in 1975 by which individuals disclosing their black income voluntarily Would not be imposed any penalty is an important measure Implemented by the government to excavate the black money. Some of the currency notes of higher denomination also have been demonetized to curtail tax evasion to some extent. In December 1974, the conservation of Foreign Exchange and Prevention of Smuggling Activities Act was brought in to control smuggling activities in the country that has been a major headache for the Government.

To combat black money, the Indian government proposed a new scheme of releasing a ten-year bond of the face value of Rs 10,000 known as “special bearer bonds” through legislation for this purpose in 1981 that was issued by the President. This scheme provides exemption to the investor from prosecution as well as disclosure of the source of the money invested and recently a series of such bonds have been issued. A huge amount of black money was recovered in 1997 with the launching of another voluntary disclosure scheme with the tax rate in this scheme being cut down to 3000.

The Dangli Committee on Controls and Subsidies in 1980, The Rajah Chelliah Committee and the National Institute of Public Finance and Policy in 1985 were some of other committees established in regard to this.

Though a few of Wanchoo Committee recommendations being pursued by the government a great deal of transformation still needs to be taken place to curb this threat to economy.

Black Money Trail by the Central Board of Direct Taxes

In recent times, the Central Board of Direct Taxes (CBDT) has begun its operation of trailing stashed bank accounts of the Indians in the tax havens as a part of intensification campaign against black money. This apex direct taxes body has instructed the income tax authorities to initiate pursuance in case a taxpayer possessing assets in foreign countries but has not shown out legally and the criminal punishment can be plunged in such cases on the basis of evidence even without assessment. With this stringent measure, the hoarders of undisclosed income in the foreign nations would be liable criminally and would be put under great deal of pressure finding no way else other than disclosing their evaded tax income. The Supreme Court of India taking a tough action on the issue of black money stashed away in the tax havens such as Switzerland hogs the limelight in the democracy. The new Direct Taxes Code makes it compulsory for both individuals and corporations to disclose their foreign bank accounts in their combined wealth and income tax return. For ensuring the information on the foreign accounts including the agencies of tax havens to trace out those accounts, the CBDT has instructed its intelligence department to deepen tab on these sources.

According to the report by the Finance Ministry, to curb black money and fiscal frauds such as money laundering, India has signed up ratification known as Tax Information Exchange Agreements (TIEA) with various countries. India has initiated negotiations with other countries to foreclose the black money stashing in foreign banks and also the Double Taxation Avoidance Agreement with 78 different countries at present has been in the process of amendment to avoid illegal hoarding of funds in foreign banks.

To the best of my ability, I have drafted the following amendments to be laid down to block the black money generation and proliferation.

– Anti Corruption laws require to be amended so as to impose Stringent penalty and prosecution and to be implemented vigorously.

– Tax slabs have to be kept simple, easy and user friendly.

– Government expenditures need to be audited frequently and unnecessary expenses on the part of the government Officials, ministers to be restricted.

– Contributions and expenses incurred by the political parties and the Chairpersons have to be closely watched and to ensure accountability.

– Our existing functioning of government system has been outdated demanding rectifications altogether.

– Transactions should be carried through electronic media only.

– Incoming and outgoing funds to NGOs and religious trusts must be regulated and transparent.

– Invoice or a bill for all purchases and services is essential.

– Details of ID and pan card numbers to be entered in all transactions.

– The list of defaulters and big borrowers has to be declared sporadically to avoid fouling financial institutions in the long-run.

– Effective implementation of tax collection and plugging legal loopholes is important.

– Modified and strict VAT to be incorporated right from the beginning of production and distribution of commodities is required at this time.

– Concessions and rebates to corporate companies are to be rigorously checked to avert privilege misusing.

– All pending disputes need a quicker recovery irrespective of influences or political pressures and court holidays to be lessened since lot of cases have been unfinished.

– Transparent public distribution system is the most wanted at this juncture.

– The provision to recall the candidate elected to the democracy or take the candidate out of power in case the elected candidate is penalized for any corruption activity or any immoral practice should be added to the constitution.

– Last but not the least, as an Indian national, we should be honest, not providing any room for bribery, corruption and illegal activities before pointing out at others.

 

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