Black money
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Black money
Subject : Economy
Section: Fiscal Policy
Context:
In cases related to deposits made in unreported foreign bank accounts in HSBC, undisclosed income of more than Rs 8,468 crore has been brought to tax and penalty of over Rs 1,294 crore has been levied, according to the Finance Minister.
Black Money:
- There is no uniform definition of black money in the literature or economic theory.
- It also refers to-‘unaccounted income’, ‘black income’, ‘dirty money’, ‘black wealth’, ‘underground wealth’, ‘black economy’, ‘parallel economy’, ‘shadow economy’, and ‘underground’ or ‘unofficial’ economy.
- It refers to wealth earned through illegal means and wealth earned through legal means but concealed from public authorities
- Source of Black Money:
- Illegal Activity-Money that is earned through illegal activity is obviously not reported to the tax authorities, and so is black.
- Legal but Unreported Activity-The second category comprises income from legal activity that is not reported to the tax authorities.
Examples for Sources of Black Money
- Multi-Level Marketing Scheme-International debit or credit cards issued by offshore banks are used to create black money.
- Disguised Ownership-Increasingly, criminals want to own legitimate businesses. It could be to earn a return or to convert black money into white.
- Mixed Sales-Mixing illicit money sources with legit ones is a popular method because it’s hard to detect, especially if there is a large cash component in the legal business.
- Smurfing-This type of transaction is usually done to evade notice by authorities monitoring transactions above a certain threshold.
- Trade Mispricing-Traditionally, goods exported and imported were either priced lower or higher to enable money laundering.
- Money Transfers To Benami Entities-In a Benami transaction, a property is transferred or held by one person and the consideration for such property is paid by another person for whose benefit such property is held.
Legislative Action:
- The Fugitive Economic Offenders Act, 2018
- The Central Goods and Services Tax Act, 2017
- The Benami Transactions (Prohibition) Amendment Act, 2016
- The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015
- Prevention of Money Laundering Act, 2002
- Gold Amnesty scheme: This is similar to the Voluntary Income Disclosure scheme to tap black money in income taxes.
Institutions to Deal with Black Money:
- Central Board of Direct Taxes
- Enforcement Directorate
- Financial Intelligence Unit
- Central Board of Excise and Customs and DRI
- Central Economic Intelligence Bureau
- National Crime Bureau
- Serious Fraud Investigation Office
- The Registrar of Companies and the Registrar of Societies (ROS)
- The Bureau of Immigration (BOI)
- National Crime Records Bureau (NCRB
- The National Investigation Agency (NIA)
- CBI and Police Authorities
- State Police Authorities and The Economic Offences Wing (EOW) of the Police functioning under the administrative control of states
- The Inter-Ministerial Coordination Committee on Combating Financing of Terrorism and
- Prevention of Money Laundering (IMCC)
- The Economic Intelligence Council (EIC)
International Initiatives:
- Double Taxation Avoidance Agreements (DTAAs)
- Automatic Exchange of Information
- Multilateral Convention on Mutual Administrative Assistance in Tax Matters
- United Nations Convention Against Corruption
- United Nations Convention against Transnational Organized Crime
- International Convention for the Suppression of the Financing of Terrorism
- United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances
- Egmont Group
- Financial Action Task Force (FATF)