This is a presentation on Black Money I made as part of my MA Economics
course.
Black Money
What is Black Money
?
Black
money refers to funds earned on the black market, on which income and
other taxes has not been paid.
Income illegally
obtained or not declared for tax purposes.
Why its such a big
problem?
India has a total GDP
of $1 trillion ie $1000 billion
Studies say that
nearly 40 to 50% is black.
That is, $400 billion
is black.
Lets say we can tax
it at the bare minimum 10%.
We will get $40
billion as revenue from tax.
What can we do in $40
billion ie $4000 crore
Ie. Rs. 2,52,000
crore.
Finance the entire
food security bill . Twice!!
Black money is the
root cause of terrorism.
How to curb Black
Money?
Simplification of tax
laws
Minimizing cash
transaction and encouraging the use of plastic money. Debit cards and credit
cards usage should be encouraged.
Changing currency is
the simplest solution to clean black money.
Simplification of tax
laws
Excessive tax rates
increase black money and tax evasion.
When tax rates
approach 100 per cent, tax revenues approach zero, because higher is the
incentive for tax evasion and greater the propensity to generate black money.
The report finds that
punitive taxes create an economic environment where economic agents are not left
with any incentive to produce.
For eg. We could have
something like this:
Increase IT limit to
5 lacs and then maximum of 25% income tax without any surcharge. Remove all tax
exemptions provisions except LIC. Housing loan interest should made fully
exempted.
Minimizing cash
transaction
As per company rules
all payment above value of Rs.20000 should be through cheque.
More than 90 percent
of population of India does not earn 100 rupees a day; more than 50 % of
population does not earn even Rs.20 a day. As such they will not face any problem.
In developed
countries like USA, 99 percent of sale and purchase take place through cards or
bank cheques and after giving acceptable identity only. In India 90 percent of
sale and purchase takes place in cash.
Change currency
If a country decides
to change the currency, it should not give much time for people to convert it
to new currency.
Give, may be, just
one month time.
Don’t announce the
plan of currency change. Plan properly, estimate the currency requirement,
print all required currency, decide the date and announce.
Request people to
deposit all the currency in banks and withdraw only required amount as new
currency.
When they go to bank
for depositing currency, everybody needs to give their PAN number or social
security number or some way to identify themselves.
Sources
Times of India : http://timesofindia.indiatimes.com/india/Black-money-Indians-have-stashed-over-500bn-in-banks-abroad-says-CBI/articleshow/11871624.cms
Wikipedia : http://en.wikipedia.org/wiki/Indian_black_money
http://www.complexproblems.in/Black%20money.htm
http://www.bbc.co.uk/news/world-asia-india-17013314
http://www.economist.com/news/finance-and-economics/21573979-banking-scandal-highlights-problem-black-money-india-evasive-action
Notes
Another measure is to
demonetise larger denomination rupee notes
Money in circulation
had increased by more than Rs.2 lakh crores in just two years from March 2008
to March 2010 as per the Reserve Bank of India's Annual Report.
It should be noted
that the US withdrew notes above the denomination of $100 in 1969.
Notes
One historic example
of tax avoidance still evident today was the payment of window tax. It was
introduced in England and Wales in 1696 with the aim of imposing tax
on the relative prosperity of individuals without the controversy of
introducing an income tax.[17] The bigger the house, the more windows
it was likely to have, and the more tax the occupants would pay. Nevertheless, the
tax was unpopular, because it was seen by some as a "tax on light"
and led property owners to block up windows to avoid it.
Notes
America’s underground
or “shadow economy,” which of course isn’t taxed, represents 8.6% of GDP, by
far the smallest of any of the countries on the list. Will McBride of The Tax
Foundation says tax morale in the U.S. has probably gotten worse since the
survey was completed because taxes have grown more complex.
As of 2013, there are
seven tax brackets for ordinary income ranging from 10% to 39.6%
