10 sources of Black Money
It is indeed heartening that somehow many of localcircles inputs make to Govt policy and schemes and last years notebandi was discussed by us before the PM announced the same. I want to illustrate 10 causes of black money in India
1.Real estate: Due to rising prices of real estate, the tax incidence applicable on real estate transactions in the form of stamp duty and capital gains tax can create incentives for tax evasion through under-reporting of transaction price.
2.Bullion and jewellery market: The purchase allows the buyer the option of converting black money into gold and bullion, while it gives the trader the option of keeping his unaccounted wealth in the form of stock, not disclosed in the books or valued at less than market price.
3.Financial markets transactions: IPO manipulations, rigging of market such as use of shell companies.
4.Public procurement: Public procurement has grown phenomenally over the years – in volume, scale, and variety as well as complexity. The Competition Commission of India had estimated total public procurement figure for India at around 10 to 11 lakh crore per year and provides ample scope of corruption due to rigged procurement process.
5.Non-profit organizations: Taxation laws allow certain privileges and incentives for promoting charitable activities which are misused and manipulated. Highlighted by FATF as well. Used to park funds of corrupt politicians and businessmen.
6.Informal Sector and Cash Economy: Cash transactions, large un-banked and under-banked areas contribute to the large cash economy in India.
7.Trade-based Money Laundering (TBML): Disguising the proceeds of crime and moving value through the use of trade transactions in an attempt at legitimizing their illicit origins.
8.Tax Havens: Tax havens are typically small countries/ jurisdictions, with low or nil taxation for foreigners who decide to come and settle there. Strong confidentiality or secrecy regarding wealth and accounts, very liberal regulatory environment and allow opaque existence, where an entity can easily be set up without indulging in any meaningful commercial activity and yet claim to be a genuine business unit, merely by getting itself incorporated or registered in that jurisdiction. This makes them highly desirable locations for multinational entities wishing to reduce their global tax liabilities. Multinational entities consisting of a network of several corporate and non-corporate bodies set up conduit companies in tax havens and artificially transfer their income to such conduit companies in view of the low tax regime there.
9.Investment through Innovative Derivative Instruments: Such as Participatory Notes (P-notes).
10.Hawala: It is an informal and cheap method of transferring money from one place without using banks etc. It operates on codes and contacts and no paperwork and disclosure is required. more
1.Real estate: Due to rising prices of real estate, the tax incidence applicable on real estate transactions in the form of stamp duty and capital gains tax can create incentives for tax evasion through under-reporting of transaction price.
2.Bullion and jewellery market: The purchase allows the buyer the option of converting black money into gold and bullion, while it gives the trader the option of keeping his unaccounted wealth in the form of stock, not disclosed in the books or valued at less than market price.
3.Financial markets transactions: IPO manipulations, rigging of market such as use of shell companies.
4.Public procurement: Public procurement has grown phenomenally over the years – in volume, scale, and variety as well as complexity. The Competition Commission of India had estimated total public procurement figure for India at around 10 to 11 lakh crore per year and provides ample scope of corruption due to rigged procurement process.
5.Non-profit organizations: Taxation laws allow certain privileges and incentives for promoting charitable activities which are misused and manipulated. Highlighted by FATF as well. Used to park funds of corrupt politicians and businessmen.
6.Informal Sector and Cash Economy: Cash transactions, large un-banked and under-banked areas contribute to the large cash economy in India.
7.Trade-based Money Laundering (TBML): Disguising the proceeds of crime and moving value through the use of trade transactions in an attempt at legitimizing their illicit origins.
8.Tax Havens: Tax havens are typically small countries/ jurisdictions, with low or nil taxation for foreigners who decide to come and settle there. Strong confidentiality or secrecy regarding wealth and accounts, very liberal regulatory environment and allow opaque existence, where an entity can easily be set up without indulging in any meaningful commercial activity and yet claim to be a genuine business unit, merely by getting itself incorporated or registered in that jurisdiction. This makes them highly desirable locations for multinational entities wishing to reduce their global tax liabilities. Multinational entities consisting of a network of several corporate and non-corporate bodies set up conduit companies in tax havens and artificially transfer their income to such conduit companies in view of the low tax regime there.
9.Investment through Innovative Derivative Instruments: Such as Participatory Notes (P-notes).
10.Hawala: It is an informal and cheap method of transferring money from one place without using banks etc. It operates on codes and contacts and no paperwork and disclosure is required. more
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Nov 01
Shri Anil Garg has raised a vital issue. Medium / Small Business / Individual tend to avoid paying due taxes on their hard earned money. Well, it not justified. But Govt should First deploy its energy and resources on Black Money stashed by Large Business abroad or invested in be-naming property, politicians will ill-gotten wealth and other major Tax evaders and should NOT allow the IT / GST Officials to harass Small Business men. That is ruining the retail business. more
Nov 07
It is sad that people in India do not see the connection between high taxation by the government, too many tax loop holes and large government control. Make the government smaller and shrink the number of bureaucrats and you will see the corruption go down. more
Nov 06
Spot on. 90% of black money in India are with netas and babus. Now they get worried about the balance 10 % only. Still worse, those who are to examine these cases belong to the original 90 %. Downsizing of babudom is the crying need of the hour not only to check corruption and generation of balck money but to prevent further wastage of precious public funds too. more
Dec 04
For me it looks like this govt is indirectly giving black money to industries and getting back part of the money as party funding. Corporate debt has increasing day by day, Indian govt bailing out banks with tax payers money. the current finance minister is providing more black-money to market. more
Nov 06
Humbly, I would like to submit that NPAs are a cumulative problem and not the fault of just this govt. but the result of lack of policies by successive govts. Also, if the money with the government is also black, then is black the new white? more
Nov 06
These are instances of grey money, not black money. Blackmoney is earned through criminal means like bribe, smuggling, murder and so on. This is besides the money evading taxes as well. Grey money on the other hand, is earned through genuine means but has not suffered all due taxes. Grey money is as good as white money in so far as country's prosperity and all genuine purposes are concerned, with sole exception of Govt lamenting for having lost some of its revenue. Sometimes, even this may only be a misnomer because additional tax on these transactions could make these transactions far too expensive to be viable and hence, overall revenue of the Govt may still not be higher. For instance, stamp duty & registration cost on real estate is mostly 8 to 10% which is far too high, if computed on actual full value of investment. It is currently affordable on white part of the investment, bringing overall cost to say 5 to 6%, assuming 30 to 50% cash component. With demonetization, cash component has vanished, as we learn from news reports. Consequently, property transactions have shrunk as well. Overall revenue to the Govt from real estate is lower today with most white money transactions, than it was yesterday with white+grey money transactions. Thus, fight against black money is misdirected. It will be meaningful only if it is first directed against black money which lies with netas, babus and criminals. After that, incidence of taxes must be reduced to encourage people to convert grey into white, without increasing their tax incidence and making transactions unviable. But is it possible for a govt that is run by babus? more
Nov 06
