Measures to Tackle Black Money in India and Abroad

Indian black money

Sources of Black money in India:

The major sources from which black money are generated are through corruption, business and crime activities. The illegal arms trade, drug trafficking, counterfeit currency, human trade for sexual exploitation and other purposes etc falls within the ambit of Black money. In fact the term is so exhaustive that broadly if the money breaks laws in its origin, movement or use, and is not reported for tax purposes, then it may be assumes as black money

The liberalization and globalization has widened the scope and nature of economic activities and consequently the scope for generation of black money. The non reporting of the income and inflating the expenditure to show less booked profits in their accounts by companies large and small is quite a common practice in developing world.

With the economy growing, there is a boom in the land and real estate sector. Since the valuation process is flexible in this area, the real estate sector is an ideal source for black money generation. Very often in real estate business the last buyer executes the agreement to sell and the original buyers become intermediaries gaining huge black money.

Causes for generation of black money in India:

One major cause for generation of black money is the lack of tax morality or non compliance to tax laws.

In India corruption is all pervasive from national to local governments, at all levels of bureaucracy, election process, private and cooperative sector etc. This fact is well highlighted by reports of transparency international and World Bank. The corruption is thus another major cause for generation of black money.

The share of unofficial money in GDP is directly related to the extent of regulation the economy. The loop holes in the laws and lack of proper regulation are well exploited by people to their advantage.

Many areas of financial market remains unregulated which promotes practices like insider trading and “capital Gain” sale. Companies and individuals also shift money from one country to another due to difference in tax rates. The transfer pricing policies are adopted to make illegal gains through fraudulent transactions by abusing the financial system.

The porous borders become a smooth option for criminals to engage in counterfeiting of currency across Indo-Bangladesh, Indo-Pakistan and Indo-Nepal. This money is associated with terrorist activities which not only destroys the economy by generating black money but also threatens national security.

The social sector expenditure of the country has increased considerably in the last decade, however without proper audit trail. The studies reveal that at most 15 to 40 percent of it is leaked as black money.

Measures to tackle black money:

The Income tax act, Foreign Exchange Management Act, Prevention of Money Laundering Act, Prevention of corruption act, various customs laws and state laws are the legal mechanisms to deal with the black money.

Administrative mechanisms like CBDT, CBEC, Enforcement Directorate, Narcotics Control Bureau, Serious Fraud Investigating office are some of the agencies which enforce the legal provisions.

India has become a member of Financial Action Task Force, an intergovernmental body which develops and promotes policies to protect the global financial system against money laundering and financing of terrorism.

The government has set up a committee Headed by Chairman, CBDT to suggest measures to tackle black money in India and abroad. The committee has submitted its report and came with valuable suggestion to counter the threats of black money. The committee has suggested the following strategies to tackle black money.

  • Preventing generation of black money
  • Discouraging use of black money
  • Effective detection of black money
  • Effective investigation & adjudication
  • Other steps

The Suggestions for tackling black money are:

India should make it compulsory the electronic delivery of services which will ensure transparency, efficiency, accountability, accessibility and reliability.

The government may consider introducing alternative financial instruments to reduce the attraction of gold as savings instrument. It may also consider revising customs duties, as also graded wealth tax, on gold and jewellery to discourage investments in unproductive assets.

A strong legal framework to deal with the menace with administration taking measures for proper enforcement of this legal framework. This largely depends on the commitment of the administration and society to fight this menace. Proper inter-agency coordination is needed for effective implementation of the laws

The recently initiated measures like DBT may act as a panacea for the problem of leakages and black money generation.

The free markets need regulatory institutions with best international practices of transparent processes .Proper regulation of financial markets to curb practices like insider trading and vigilance of organizations like SEBI are needed. The oversight mechanism for the financial markets must have trained manpower with proper domain knowledge of financial investigation.

Oversight in the private sector is almost absent, except for some professionally managed companies. The central government should establish a regulator (under Company law / Income Tax law) to empanel auditors in different grades and randomly assign them to the private sector firms.

Effective battle against black money cannot be ensured unless the judicial machinery to deal with it is specialized and the trial of offences is expeditious and punishments exemplary. The Ministry of Law should speed up the setting up of fast-track courts all over the country in a time-bound manner.

The recent interventions of Supreme Court and the media glare on the issue have put pressure on the government to take steps to curb this menace. Implementing the report of the committee to tackle measures to curb black money will go a long way is addressing this menace which is plaguing the country.

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