All Earnings acquired via illicit activities or legal Income that is not registered for tax purposes are "black money." The proceeds of black money are frequently received in cash from illegal economic activity and are therefore not taxed.
In black money there is no tax paid to the Government. Consider a store that only accepts cash and does not provide receipts to its consumers. As it would not pay tax on unrecorded purchases, that store transacts in black money. The seller here made money from legitimate sources but avoided paying Taxes.
Following an uproar in Parliament, the Indian Government issued a White Paper on Black Money in May 2012, presenting the various aspects of black money and its complex relationship with the country's policy and administrative regime. It also reflected on the policy options and strategies that the Government has been using to solve the problems of black money and corruption. The percentage of a country's income that is made up of black money has an impact on the country's Economic Growth.
Unreported income, which isn't taxed, causes the Government to lose revenue, thus resulting in financial leakage. Moreover, these funds rarely make it into the banking system. As a result, respectable small firms and entrepreneurs may find it more difficult to secure financing.
Black money causes a country's financial soundness to be undervalued. Estimating the black money amount in any Economy is exceedingly difficult. This is unsurprising, given the tremendous incentives that participants in the Underground Economy have to keep their activities hidden.
The Gross National Product (GNP) or Gross Domestic Product (GDP) cannot include these unreported profits. As a result, a country's estimations of consumption, savings, and other macroeconomic variables are likely to be inaccurate. They harm planning and policymaking.
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Here are some benefits associated with black money:
Black money delivers the largest benefits in nations with the most repressive laws. In the Soviet Union, for example, many common market business transactions were outlawed. People turned to the underground economy to ease shortages and get restricted products
In many other instances, regimes enforced price controls or sales taxes that make items unavailable or costly. There was a way to mitigate the impact by using black money
It also serve to mitigate the effects of institutionalised racism
Governments have historically prohibited particular races from owning Land, exercising natural rights to trade, or trading securities. Some discrimination victims were pushed into less regulated sectors where they were free to generate black money due to these bans
Here are the cons:
Businesses that generate a lot of money in the underground economy always have to pay a massive amount to authorities, whether on the minor level or major, to turn a blind eye now and then. However, this might result in a corrupt police force that ignores crimes actively
In addition to some of the blatantly immoral behaviours done to get black money increases the amount of black money in the economy frequently leads to more corruption
There are two types of black money sources in India, as follows:
The main activity here is to earn money legally while avoiding paying taxes (tax evasion). Unaccounted income is the outcome of tax evasion, whether it is a direct tax on income or an indirect tax on commodities.
High tax rates, a lack of respect for the Government and its rules, mild penalties, and the economy's nature are all causes of tax evasion. Tax evasion is frequently more appealing when tax rates are high. Typically, countries with a poor implementation of regulations have a higher share of the unaccounted economy than those with good implementation and adequate deterrence.
Smuggling of goods, forgery, embezzlement, chit funds, production of contraband goods (illicit liquor, arms, and narcotics), illegal mining and forest felling; hoarding or black marketing the price-controlled items and resources, robbery, theft, extortion, kidnapping and human trafficking, sexual exploitation, blackmailing, bribes to public officials are all examples of anti-social activities.
These behaviours represent a decline in moral and social worth and are punished under several federal and state laws.
Achieving an equal, transparent, and efficient economy necessitates preventing and managing black money. Because the economy is a country's backbone, black money halts the economy and sends the country into a tailspin. It becomes a roadblock to the economy's development and undoubtedly ruins it.