Black money is generally referred to as income that goes unreported to tax authorities. Although there is no official definition, terms such as parallel economy, black incomes, unaccounted economy, illegal economy, and irregular economy are used to describe it. The presence of black money in an economy feeds into tax evasion, leading to a loss in revenue for the government and results in a myriad of socioeconomic issues like higher inflation and increased disparity between rich and poor.
Latest Developments in Tackling Black Money in India
Recently, the Indian Government disclosed a collection of Rs 2,476 crore as tax and penalty during the one-time three months compliance window in 2015. Despite this, there still remains an uncertainty over the exact amount of black money in foreign accounts in the past five years. However, undisclosed credits amounting to Rs 20,353 crore have been traced back to 930 India linked entities involved in the Panama and Paradise Paper Leaks.
Understanding the Source of Black Money
Black money primarily flows from two broad categories – illegal activities and unreported legal activities. Practices like International debit or credit cards issued by offshore banks, disguised ownership of legit businesses, mixed sales, trade mispricing, and Benami transactions contribute significantly to the growth of black money.
Impact of Black Money on the Economy
The presence of black money leads to a significant loss in government revenue, causing an increase in deficit, taxes, and government borrowing. It also affects the overall development due to reduced spending. Additionally, black money has been found to fuel inflation which disproportionately impacts the less well-off sections of society.
Government Initiatives to Tackle Black Money
Multiple legislative actions like The Fugitive Economic Offenders Act, 2018, The Central Goods and Services Tax Act, 2017, The Benami Transactions (Prohibition) Amendment Act, 2016, The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 and Prevention of Money Laundering Act, 2002 have been initiated by the government to counter black money.
Other initiatives like the Gold Amnesty scheme, Double Taxation Avoidance Agreements (DTAAs), Automatic Exchange of Information, the Foreign Account Tax Compliance Act of USA, and being a part of the Financial Action Task Force (FATF) are strategic international cooperation methods used by India to tackle the issue.
Way Forward in the Fight Against Black Money
In order to effectively battle against black money, further steps are needed. Legislative frameworks relating to public procurement, prevention of bribery of foreign officials, citizens grievance redressal, whistleblower protection, and strengthening institutions dealing with illicit money are required.
Additionally, electoral reforms are vital in reducing the influence of black money in elections. Training personnel for effective action in tackling black money and incentivising bank transactions can also help curb this menace.
Tackling the issue of black money is crucial for the overall health of any economy. Significant progress has been made in recent years, but there is still a long way to go in ensuring a black money-free economy.
