Kinds of black money varies from one society to another. Depending on the extent to which criminal activities are present and the degree to which taxes are evaded.In India, both sets of activities are prevalent to a large extent. Such as- corruption among government and elected officials are widely prevalent. Which causes tax evasion at the central and state levels.And also in the payment of direct and indirect taxes. It is not easy to guess the relative size of the two streams of black money. Nor anybody tried to do so. Money earned from tax saving and buy wealth from this income, are referred to as black money.
People transform the illegal income in different kinds of assets- that is land, gold, jewellery, benami bank deposits. They hide bank accounts or plain cash from the tax authorities. This earning is called black money. This moneycan be put at home or abroad. I depends on Black money holders convenient. Where it can be best hidden or where it can be put to better use.
The black economy:-
It is the black money which created black economy. Black economy is also referred to as the 'underground economy, shadow economy or illegal economy. This part of the economy comprises the set of activities which generate black money. In black economy the legal-turned into illegal money flows. And the use of this flows in its illegal activities known as black economy. Black money comes from the black economy, so it is need to remove black money from the economy. Which will destroy the black economy. In other words, to stop generation of black money, we must remove off black economy permanently.
Interchangeability of the black and the white :-
There is constant flow of money between white and black streams. Let's see the example of a real estate developers. They paid partly in cash for his sales,to save the income tax. Then these unac counted funds use in a variety of way. They may use one part to pay a seller of cement in cash, who too wishes to hide this sale from the tax authorities. This part of the black money then circulates in the black economy. Like cement, same thing happens for the purchase of mate rials, to build a group of flats. With all necessary permissions building get ready. Here, the black money is converted into an asset that is part of the "white' or the legal economy.
Now, real estate developers' tax saved money (black money) use to buy gold which is not reported. So, theses second and third parts of the black money of the real estate developers, remain part of the black economy as unaccounted assets. In the meanwhile, the trader of cement may use his cash income to pay his workers cash wags. Which also not written in his books of account. The workers may use their wages to buy groceries, and receive a receipt on which tax is shown as paid. Here, the black money of the traders like cement gets converted, via certain purchases of the workers, into white money. To return to our example, when real estate developers sell a flat to buyer, the price of the flat may cover both the legal expenditure as well as the expenditure incurred illegally.Such as payment made with black money for some of the cement. Here then the black money used in constructions is 'embedded' in the price of the flat. The buyer of the flat may pay for it from tax-paid income. This transaction converts black money used in constructions in a full legal asset.
Black money can across national borders. Black money generated at home can be taken out of the country and deployed abroad in some asset, or even kept as bank deposits. After a while it could be brought back to India through a 'legal' route like an offshore financial centre and invested as legal money in the domestic economy. This is called the 'round-tripping' of black money.In various transactions, the 'stock' of black money contained in an asset on sale can be converted into a 'flow'. These were earlier entirely through cash while conversions through cash flows continue to be important, new forms are now used. Increasingly, large value conversions of stocks into flows also take place through the financial system through sophisticated manipulation of accounts, and not through cash.
Forms of generation of black money :-
The 2012 White Paper has useful listing of the many ways in which black money is generated.
First one is 'crude' way. In that way back money may be laundered using sophisticated methods, hiding from the law.
Another is 'manipulation of accounts. These accounts get created to save the tax on income.
The ways in which black money is generated use of sophistication is increased. Especially in financial practices that cross national borders.
The White Paper identifies some 'vulnerable'sectors of generation of black money. These include: (1) land and real estate transactions, (2) bullion and jewelry transactions, (3) financial market transactions, (4) public procurement, (5) the non-profit sector, and (6) the informal sector with its cash economy.
Now sectors for the generation of black money has changed. In the recent years, real estate, financial market transactions, corruption in public procurement (civil contracts, defense imports) and practices in the non-profit sector (education institutes and Hospitals run by trusts) have become more important for black money generation.
No comments:
Post a Comment