Black Money


  • Bulk of Black Money is in India
  • parallel economy is about 75% of GDP in 2013 : National Institute of Public Finance and Policy
  • Major sectors related to it – higher education, real estate and mining sectors.
  • The real challenge is in having a regulatory regime that promotes tax compliance and income disclosure. Preventing black money accumulation may be more important than even unearthing it.
Critically comment on the issue of black money and the efforts made by the union government to address various aspects related to black money. (200 Words)

Black money (BM) generation has been one of the most persistent and destructive problems associated with our economic growth primarily due to the inability of the government to effectively tackle the issue over the years in spite of numerous domestic and foreign reports on the menace. This has resulted in the formation of a ―shadow economy which has been estimated to be around 23-26% of the entire economy.
One of the first methods employed by the Indian government to recover unaccounted money was the Voluntary Disclosure of Income (VDI) in 1951. In 1981 the Central government had officially recognized the prevalence of illicit money in the Indian economy and decided to float Special Bearer Bonds (SBB). Although the VDI Scheme has been largely successful, the SBB scheme has been criticized for allowing BM owners to escape punishment.
To deal with the hoarding of BM in tax-havens, the Centre has signed numerous DTAA with foreign countries like Switzerland and Mauritius and TIEA with countries like Bahamas and Bermuda. It has also set up various units such as the CBDT (cross-border transactions and transfer pricing), ED (enforces FERA/FEMA), FIU (suspect transactions) etc. The Centre had also appointed the MC Joshi Committee(2012) on BM to study the generation and curbing of BM.
Although these steps have been progressive and have shown results in the past year, especially after the formation of the SIT by the new government, various roadblocks exist in the recovery of BM from foreign countries. In addition to continuing talks with foreign governments on this issue, the Centre should strengthen existing laws such as PoCA, PoMLA, Whistleblower’s Act etc. to deter BM generation within the country
Critically evaluate the nature of  government’s fight against black money and suggest how it can be made more effective. (200 Words)
Government’s steps to fight against black money:
  1. Quick Investigation : Government has responded quickly by setting up a multi-agency investigation probe in response to recent revelations regarding Panama tax heaven.
  2. Disclosing Income : Budget 2016-17 provides for Indian citizens to declare their undisclosed income on payment of close to 50% tax within 4 months.
  3. Amendment to Prevention of Money Laundering Act : it would enable enforcement agencies to confiscate unaccounted assets held abroad & launch prosecution against defaulters.
  4. Benami Transaction Act 2015 : It enables confiscation of benami property & block avenues for generation & holding black money. Ex : Real Estate sector.
  5. Finance Act 2015 : GoI has prohibited acceptance or payment of Rs 20,000 or more in cash in relation to purchase of immovable property.
  6. Agreement with US: has been signed for automatic exchange of information for sharing of tax data.
  7. Compliance Window to disclose asset.
  8. Rationalisation of Tax structure: Bringing down corporate tax in parity with global standards.
  9. Undisclosed Foreign income and Asset Act, 2015 or the Black money Act. and Real Estate Bill to check generation of Black money
  10. Mandatory quoting of pan card and complying with the recommendation of SIT on black money.
  11. Making efforts to comply with set standards of Financial Action Task Force (FATF) . Efforts like national risk assessment to identify susceptible sectors
  12. Also efforts to check money laundering by following OECD-BEPS (Base Erosion and Profit Sharing) strategy.
However, Government measures still lack following :
  1. Tax Havens: India has unable to sign an agreement with the countries with measure tax heavens like Mauritius, Panama etc.
  2. Tax Laws : On one hand there is lack of compliance to tax laws rendering them ineffective, on the other hand too much compliance has make taxpayers & investors anxious. Ex : Vodafone case.
  3. Tax Administration : still transparency is lacking. In addition, expertise of officers in field of international taxation & transfer pricing is questionable.
  4. Tax Regime : Instability in tax rates, undue cesses like krishi kalyaan cess, cess on petroleum products, imposition of MAT etc.
Some measures suggested :
  1. Tax Regime : It should be simple  and stable so that an honest taxpayer is avoided from their web.
  2. Tax Laws : They should not offer unrestrained power to tax investigators which may dampen investment climate in the country.
  3. Tax Administration : Officers should be imparted skill for effective actions, they should be encouraged for foreign study tours to learn more about the international taxation.
  4. Tax heaven : China has renegotiated with Mauritius & now China can force investors to pay 10% capital tax gain. Similarly, India can also resolve this issue with effective diplomatic talks with major tax heavens.



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