Presented By:

Nishmitha P H

2nd Mcom

What is Black Money?

Income illegally obtained or not declared for tax purposes.

Black money is money which is earned through any illegal activity controlled by country regulations. Black money proceeds are usually received in cash from underground economic activity and, as such, is not taxed. Recipients of black money must hide it, spend it only in the underground economy, or attempt to give it the appearance of legitimacy through money laundering.

Indian Black money

In India, Black moneyrefers to funds earned on the black market, on which income and other taxes have not been paid.

Total exceeding US$50 trillion are stashed in Switzerland's.

Central Bureau of Investigation said that Indians have US$500 billion of illegal funds in foreign tax havens, more than any other country.

In March 2012, the

Government of India

clarified in its parliament

that the CBI Director's

statement on $500

billion of illegal money

was an estimate based

on a statement made to

India's Supreme Court in

July 2011.[

Round-tripping of black money The unlawfully acquired money kept abroad is routed back to

India by round tripping processes. Round tripping involves

getting the money out of one country, say India, sending it to

a place like Mauritius and then, dressed up to look like

foreign capital, sending it back home to earn tax-favoured

profits.

Reason or causes for black money

Historical Reason;

Shortages during World War II

Faulty Taxation

Redundant Control Measures

Large Public Expenditure

Other causes:

1. Unrealistic Tax Laws and Tax Frauds:

2. Different Rates of Excise Duty:

3. Control Policy:

4. Quota System:

5. Scarcity:

6. Inflation:

7. Elections in a Democratic System and Political

Funding:

8. Real Estate Transaction:

9. Privatisation:

10. Agricultural Income:

Sources of Black Money Hawala:

Economics of Gold:

Rising share of services

Under-invoiced

inventories:

Over-invoiced plant and

equipments:

Informal sector activities

including trade, films,

production etc.:

Illegal holding of precious metals, gem and

jewellery

Flight of capital for investments abroad

Illegal activities like smuggling, drugs,

prostitution, and crime:

Transfer activities (like secondary share market

and real estate) and buying of influence (bribe

for work):

Methods to estimate:

Methods have been developed to estimate and evaluate the

illicit amounts of money, of which, two well-established

economic models are based on “Model of Capital Flight”.

The World Bank Residual model is based on change in

external debt or CED. The Trade Mispricing model which is

based on the IMF Direction of Trade Statistics or DOTS

database. But the problem with these methods has made the

task of estimators all more difficult as these methods cannot

capture genuine reversal of capital flight.

Conversion of black money

to white money:

Funding politicians:

Selling black income in form of jewellery:

Donation:

2016 Panama Papers Leak

The 2016 Panama Papers scandal is the largest-ever leak of information on black money in history.[13] International Consortium of Investigative Journalists first obtained the leaked information, revealing over 11 million documents. These documents pertain to 214,000 offshore entities and span almost 40 years. The papers originated from Mossack Fonseca, a Panama-based law firm with offices in more than 35 countries. The list of names exposed in the scandal includes 500 Indians who flouted rules and regulations, such as Amitabh Bachchan, Aishwarya Rai, Niira Radia,[14] KP Singh, Garware family, Harish Salve, and others.

Black money in Swiss banks

In early 2011, several reports Indian media alleged Swiss

Bankers Association officials to have said that the largest

depositors of illegal foreign money in Switzerland are

Indian.[1][19] These allegations were later denied by Swiss

Bankers Association as well as the central bank of

Switzerland that tracks total deposits held in Switzerland by

Swiss and non-Swiss citizens, and by wealth managers as

fudiciaries of non-Swiss citizens.[2][3][20]

In August 2010, the government revised the Double Taxation

Avoidance Agreement to provide means for investigations of

black money in Swiss banks. This revision, expected to

become active by January 2012, will allow the government to

make inquiries of Swiss banks in cases where they have

specific information about possible black money being stored

in Switzerland.[22]

In 2011, the Indian government received the names of 782

Indians who had accounts with HSBC. As of December,

2011, the Finance Ministry has refused to reveal the names,

for privacy reasons, though they did confirm that no current

Members of Parliament are on the list. In response to

demands from the Bharatiya Janata Party (BJP) opposition

party for the release of the information, the government

announced on 15 December that, while it would not publish

the names, it would publish a white paper about the HSBC

information.[23]

2015 HSBC leaks In February 2015, Indian Express released the list of 1195

Indians account holders and their balances for the year 2006-07 in HSBC's Geneva branch. The list was obtained by French newspaper Le Monde and included the names of several prominent businessmen, diamond traders and politicians. The number of Indian HSBC clients is roughly double the 628 names that French authorities gave to the Indian Government in 2011. Indian government said it will probe this matter. The balance against the 1195 names stood at ₹25,420 crore (US$3.8 billion).

The list which had names of dictators and international criminals, was simultaneously published by news organisations in 45 countries including The Guardian, UK; Haaretz, Israel; BBC, London.[30] HSBC had helped its clients evade taxes[31] and said in a statement that "standards of due diligence were significantly lower than today.

Consequences of Black Money Loss of revenue to the government and running of parallel

economy in country

Black money and corruption form a vicious circle

Black money effects real capita income and national income

of country

Black money causes decrease in quality of public goods and

services

Black money results in higher taxation and inflation

Black money causes difficulty in the formation of

monetary and fiscal policy

Black money results in increased criminal activities

Measure to control Black money: 1. Constitution of SC Monitored SIT on Black Money

2. Renegotiation of Tax Treaties

3. The Black Money (Undisclosed Foreign Income and

Assets) and Imposition of Tax Act, 2015 for Foreign Black

Money

4. Income Declaration Scheme 2016 for unearthing

Domestic Black Money

5. Penalty on Real Estate Transactions undertaken in

Cash exceeding Rs.20,000/-($297).

6. Tax Collection at Source on Cash Sales exceeding

Rs.2,00,000/- ($2970)

7. Benami Transaction (Prohibition) (Amendment) Bill

8. Narendra Modi’s warning to Tax Evaders in his interview

to Times Now Journalist Mr. Arnab Goswami

According to tax administrators, GST will help in

curbing domestic black money. “Though it is a

reform for indirect taxes, there are filers who

understate incomes by not reporting each and

every transaction. By doing this, they save excise,

VAT, Octroi etc, and more importantly, are able to

furnish under reporting of their incomes. Since,

GST will have a paper trail which can be accessed

by the income tax department such practices will

discourage generation of black money in the

system,” said an income tax official.

Conclusion: To conclude, we may say, that it is really a difficult task to

eradicate completely black money which has permeated

every section of society and every sector of economy.

Nevertheless, the measures enlisted above can go a long

way to bring down the black economy to manageable

proposition over a period of time.

Thank You