Overview
If tax is not paid on any income which is not exempt according to the rules and laws of a country the income is said to be black money. For example, if a person earns Rs.100 or Rs.100 million; and if the tax rate is 10 per cent, and if the applicable taxes are not paid, the entire income is considered to be black money and it is illegal.
Circulation of paper and metallic currency as a medium of exchange is in vogue in almost all the modern economies of the world in the present age. It is perhaps the most basic and inevitable cause of the genesis, growth and sustenance of black money.
The use of paper and metallic currency need be minimised or abolished to prevent the growth of black money. The use of online, card payments, and receipts etc. need be encouraged. The use of technology to deal with the problem of black money cannot be over emphasized.
Genesis and Favourable Condition
The excessive use of and reliance upon paper and metallic currency is the root cause of the generation and growth of black money. The less use of technology like online payments and transfers, the lesser use of debit or credit cards etc. and the paucity of law enforcement agents in the third world economies are acting as the bottleneck for the prevention of black money.
There are various tax treaties between various countries of the world. Therefore, it is very easy for people to transfer black money from one country to another. These tax treaties, though created on good faith and with good intentions, have created safe havens for black money. It is encouraging people to avoid paying taxes, and possess black money.
The gigantic public sector enterprises like railways, insurance companies, postal services companies, oil and gas marketing companies, etc. in the third world countries do not normally accept non-cash payment. If they do so, they charge the so-called convenience fee or cash payment surcharge which discourages people to use white money in the form of online payments and transfers or cheques. In this way, the present system courageous people possess and use black money; and it also forces people who do not have black money to convert their white money into black one by withdrawing their money from the banking system! Thus, even the white money becomes the part of the black economy.
Similarly, many corrupt real estate developers insist upon receiving a part of the consideration in cash. Say for example, if you wish to buy a property for Rs.7 lakh, the developer may insist on receiving Rs.2 lakh in cash. These people would not disclose the cash income to the tax authorities, and thereby they would evade paying taxes on this money. Perhaps the buyer had only white money which entered into the black economy without any hindrances! It is an illegal act on the part of the developer or their agents . You may avoid buying properties from these developers or their agents and insist on making payment through electronic channels or cheques. You may, if not must, also report these kind of incidents to the appropriate law enforcement agencies.
Countless retailers in the third world underdeveloped economies do not accept online or card payments. They discourage their customers by charging extra money or by not giving discount which is otherwise available on cash payment, thereby they discourage their customers to make online or cheque or card payments. In this way, the customers prefer to possess and use cash instead of alternative means of payments. A medicine retailer charged one of their customers Rs.500, and did not give any cash receipt of the payment! The sum of money also included the indirect taxes payable to the government. By not giving cash receipt there is no record of the income of the medicine seller. Therefore, they would neither pay the applicable taxes on the income nor would they deposit even the indirect tax collected from the customer to the government tax authorities. This kind of scenario is doubly harmful for the economy. Therefore, if the customers make any kind of payment, they must insist upon receiving a valid receipt of the payment. If any retailer refuses to give the receipt, you me avoid dealing with such retailers and report the incident to the appropriate law enforcement agencies.
Transactions to the tune of millions and billions in cash are very common in the third world countries, and they continue unabated. It is because of the understaffed and ill-equipped law enforcement agencies and ineffective means of detecting such transactions. Although there is a provision in the law that no cash transaction is legal beyond a certain limit, there is hardly any system to detect or prevent any illegal transaction. Therefore, creating awareness among people regarding the disadvantages and harmful effects of black money on the economy and on the people of the country is indispensable. Public participation seems to be of primary importance to prevent the generation, use and growth of black money.
Nowadays, the medical expenses are increasing day-by-day. People are spending hundreds of thousands of rupees for overcoming very common diseases. Countless hospitals and nursing homes in the third world countries do not accept online or card payments even for very large amount of money. Why do they do so? Is it because they wish to hide the income, if possible? It is advisable that the rule or policy makers make such rules that cash payment beyond a certain limit is illegal; and there should be a technological means to detect and report search transactions to the law enforcement agencies.
Educational expenses are increasing day-by-day. Nevertheless, countless educational institutions do not accept online or card payment of fees etc. They accept only cash! Is it not absurd? They employ cash handling clerk, they spend time for depositing the collected cash into bank; there are chances of loss due to fake currency; there are chances of pilferage or robbery while depositing cash from office into bank; there are problems of change. Still they prefer cash instead of other modes of payment. What can be the reasons? Why do they dislike other modes of payments which are safer and more convenient as compared to cash? There should be laws and rules in place that all the educational institutions, recruitment agencies, etc. accept only non-cash payment of fees etc. If a student or an applicant is unable to make a non-cash payment because of time issue or a situation, they may be allowed to make cash payment only to an agent bank of the institution or agency.
Effect
At the time of tide all the ships on the river rises. It is a very old saying. It means that when the economy of the country progresses, all the people living in the country would financially develop. However, nowadays, people give more importance to the individual development and well being, vis-a-vis. that of the country and of the mankind. In countless underdeveloped and developed countries the rate of tax on income is around 30 per cent which is probably too high and acts as an encouragement to the tax evadors. A poor man who spends even Re.1 pays indirect tax of around 15 paise! On the other hand the rich man who earns millions does not pay even a single paisa as tax! If everyone pays their taxes honestly, the revenue collection by the government would be much higher as compared to the present day situation. Moreover, there will be considerable saving in the cost of detection and prevention of black money. In this way, the government would have adequate money for spending on welfare and infrastructure-building; and it would not be compelled to charge such a high rate of taxation. The rate of taxation would fall. People would have to pay lesser taxes; and they would enjoy better welfare services and better infrastructure provided and built by the government. Better infrastructure would minimise wastage and increase the rate of return on investment by the firms. It may also attract foreign and domestic investors to invest their idle or low earning bank deposit into such economies. It would reduce the cost of capital, and further increase the return on investment. Thus, the income of the firms would rise, disposable income would rise, employment opportunities would rise,...; and it would cause economic boom. The tax collection by the government would eventually rise. It would further improve infrastructure, and welfare services rendered by the government. The progress becomes cyclical in the positive direction.
People who possess black money ensure that the money does not enter the organised and regulated banking system of the economy. Therefore, they use the black money in their personal revenue expenses; and in consequence the people who receive that money also do not let it enter the banking system in order to avoid paying taxes. Thus, a part of the liquidity and loanable fund of the economy always remains out of the banking system. It causes structural weaknesses in the economy.
Due to the menace of black money there is a leakage of loanable funds from the banking system. Thus the supply of loanable funds fall and it causes the rise in the cost of capital borrowed by the business community. It acts as a deterrent to the entrepreneurs, and existing firms also postpone their new investments. It causes fall in the production and a consequent fall in the employment. The disposable income in the hand of people falls which causes further fall in the demand for goods and services; and therefore the economic activities also slump. It causes further fall in production and further loss of employment. It becomes a vicious circle of unemployment due to the presence of black money.
Owing to the slowdown in the economic activities the tax collection by the government also falls. Therefore, the government is compelled to increase the rate of tax on income so that the ongoing government spendings may continue. A rise in the rate of taxation increases the cause and chances of further tax evasion. So, black money is like a virus which starts multiplying once it gets the slightest chance to infect an economy.
Prevention
As discussed earlier the root cause of black money is the circulation of paper and metal currencies. So, what is the alternative available to us, and what is the way out? A possible alternative of the paper and metallic currency is already available to the mankind. Many people are already using online fund transfer, debit card, credit card, ATM card, e-wallet, etc. for making or receiving payments. The technology already exists in almost all the economies of the world. Even the underdeveloped economies are also using technology for making or receiving payments. Some people may say that the cost of setting up and maintenance of such a system may be very high. It is true, but I feel the cost of circulating paper and metal currency is not too small. If we can abolish the physical form of cash, we would save a lot of money; and the virtual money would completely make sense in terms of cost effectiveness. The gigantic public sector enterprises like railways, insurance companies, oil and gas marketing companies, etc. who do not accept online or card payments should be encouraged to start accepting non-cash payments. If they charge any fee on non-cash payments, that should be abolished immediately. It would encourage people to use and possess white money.
If a person or an entity applies for a business or trade licence, they must be encouraged to have a charge or swipe machine, and an online payment system in place as a prerequisite before applying for such a licence. It would make it very simple for the buyers to make payments in non-cash mode; and the generation of black money would be minimised.
Countries like the UK has a £50 bill as the highest face value note! Why the underdeveloped countries cannot have lower denomination currency? For example, if we only have 10 rupee bills and if someone tries to hoard Rs.100 million, they would have to handle countless 10 rupee bills which is practically very difficult; and it would make it easier for the tax authorities and law enforcement agencies to detect black money and such people.
Unique Identification number or card
If every citizen of a country is issued a unique identification card or number on the basis of their fingerprints, retina print, etc., it would be very difficult_ if not impossible_ to hide one's identity; and it would prevent any type of identity theft. It would be mandatory for everyone to have the unique identification number to open a bank account or to buy or sell expensive items like gold, silver, or any other other precious metals, stocks like shares, debentures, etc. very expensive artifacts, e.g. yatch etc., and real estate etc. In this way, it would be very difficult for anyone to avoid paying taxes on income or on transactions. However, people should have the liberty to change their bank account just by visiting a desired bank-branch and revealing their unique identity number or any other number based on their unique identity number. It would make it impossible for people to possess black money in the near future.
The lesser it is the lesser is the chance of its growth and incentive to possess it. It would also make the tax authorities and law enforcement agencies to detect and deal with the fewer delinquent tax evaders.
Disclaimer:
•Any similarity with any person or entity_dead or alive_ need be considered a mere coincidence. The readers are expected to have only a readerlike views and attitude.
If tax is not paid on any income which is not exempt according to the rules and laws of a country the income is said to be black money. For example, if a person earns Rs.100 or Rs.100 million; and if the tax rate is 10 per cent, and if the applicable taxes are not paid, the entire income is considered to be black money and it is illegal.
Circulation of paper and metallic currency as a medium of exchange is in vogue in almost all the modern economies of the world in the present age. It is perhaps the most basic and inevitable cause of the genesis, growth and sustenance of black money.
The use of paper and metallic currency need be minimised or abolished to prevent the growth of black money. The use of online, card payments, and receipts etc. need be encouraged. The use of technology to deal with the problem of black money cannot be over emphasized.
Genesis and Favourable Condition
The excessive use of and reliance upon paper and metallic currency is the root cause of the generation and growth of black money. The less use of technology like online payments and transfers, the lesser use of debit or credit cards etc. and the paucity of law enforcement agents in the third world economies are acting as the bottleneck for the prevention of black money.
There are various tax treaties between various countries of the world. Therefore, it is very easy for people to transfer black money from one country to another. These tax treaties, though created on good faith and with good intentions, have created safe havens for black money. It is encouraging people to avoid paying taxes, and possess black money.
The gigantic public sector enterprises like railways, insurance companies, postal services companies, oil and gas marketing companies, etc. in the third world countries do not normally accept non-cash payment. If they do so, they charge the so-called convenience fee or cash payment surcharge which discourages people to use white money in the form of online payments and transfers or cheques. In this way, the present system courageous people possess and use black money; and it also forces people who do not have black money to convert their white money into black one by withdrawing their money from the banking system! Thus, even the white money becomes the part of the black economy.
Similarly, many corrupt real estate developers insist upon receiving a part of the consideration in cash. Say for example, if you wish to buy a property for Rs.7 lakh, the developer may insist on receiving Rs.2 lakh in cash. These people would not disclose the cash income to the tax authorities, and thereby they would evade paying taxes on this money. Perhaps the buyer had only white money which entered into the black economy without any hindrances! It is an illegal act on the part of the developer or their agents . You may avoid buying properties from these developers or their agents and insist on making payment through electronic channels or cheques. You may, if not must, also report these kind of incidents to the appropriate law enforcement agencies.
Countless retailers in the third world underdeveloped economies do not accept online or card payments. They discourage their customers by charging extra money or by not giving discount which is otherwise available on cash payment, thereby they discourage their customers to make online or cheque or card payments. In this way, the customers prefer to possess and use cash instead of alternative means of payments. A medicine retailer charged one of their customers Rs.500, and did not give any cash receipt of the payment! The sum of money also included the indirect taxes payable to the government. By not giving cash receipt there is no record of the income of the medicine seller. Therefore, they would neither pay the applicable taxes on the income nor would they deposit even the indirect tax collected from the customer to the government tax authorities. This kind of scenario is doubly harmful for the economy. Therefore, if the customers make any kind of payment, they must insist upon receiving a valid receipt of the payment. If any retailer refuses to give the receipt, you me avoid dealing with such retailers and report the incident to the appropriate law enforcement agencies.
Transactions to the tune of millions and billions in cash are very common in the third world countries, and they continue unabated. It is because of the understaffed and ill-equipped law enforcement agencies and ineffective means of detecting such transactions. Although there is a provision in the law that no cash transaction is legal beyond a certain limit, there is hardly any system to detect or prevent any illegal transaction. Therefore, creating awareness among people regarding the disadvantages and harmful effects of black money on the economy and on the people of the country is indispensable. Public participation seems to be of primary importance to prevent the generation, use and growth of black money.
Nowadays, the medical expenses are increasing day-by-day. People are spending hundreds of thousands of rupees for overcoming very common diseases. Countless hospitals and nursing homes in the third world countries do not accept online or card payments even for very large amount of money. Why do they do so? Is it because they wish to hide the income, if possible? It is advisable that the rule or policy makers make such rules that cash payment beyond a certain limit is illegal; and there should be a technological means to detect and report search transactions to the law enforcement agencies.
Educational expenses are increasing day-by-day. Nevertheless, countless educational institutions do not accept online or card payment of fees etc. They accept only cash! Is it not absurd? They employ cash handling clerk, they spend time for depositing the collected cash into bank; there are chances of loss due to fake currency; there are chances of pilferage or robbery while depositing cash from office into bank; there are problems of change. Still they prefer cash instead of other modes of payment. What can be the reasons? Why do they dislike other modes of payments which are safer and more convenient as compared to cash? There should be laws and rules in place that all the educational institutions, recruitment agencies, etc. accept only non-cash payment of fees etc. If a student or an applicant is unable to make a non-cash payment because of time issue or a situation, they may be allowed to make cash payment only to an agent bank of the institution or agency.
Effect
At the time of tide all the ships on the river rises. It is a very old saying. It means that when the economy of the country progresses, all the people living in the country would financially develop. However, nowadays, people give more importance to the individual development and well being, vis-a-vis. that of the country and of the mankind. In countless underdeveloped and developed countries the rate of tax on income is around 30 per cent which is probably too high and acts as an encouragement to the tax evadors. A poor man who spends even Re.1 pays indirect tax of around 15 paise! On the other hand the rich man who earns millions does not pay even a single paisa as tax! If everyone pays their taxes honestly, the revenue collection by the government would be much higher as compared to the present day situation. Moreover, there will be considerable saving in the cost of detection and prevention of black money. In this way, the government would have adequate money for spending on welfare and infrastructure-building; and it would not be compelled to charge such a high rate of taxation. The rate of taxation would fall. People would have to pay lesser taxes; and they would enjoy better welfare services and better infrastructure provided and built by the government. Better infrastructure would minimise wastage and increase the rate of return on investment by the firms. It may also attract foreign and domestic investors to invest their idle or low earning bank deposit into such economies. It would reduce the cost of capital, and further increase the return on investment. Thus, the income of the firms would rise, disposable income would rise, employment opportunities would rise,...; and it would cause economic boom. The tax collection by the government would eventually rise. It would further improve infrastructure, and welfare services rendered by the government. The progress becomes cyclical in the positive direction.
People who possess black money ensure that the money does not enter the organised and regulated banking system of the economy. Therefore, they use the black money in their personal revenue expenses; and in consequence the people who receive that money also do not let it enter the banking system in order to avoid paying taxes. Thus, a part of the liquidity and loanable fund of the economy always remains out of the banking system. It causes structural weaknesses in the economy.
Due to the menace of black money there is a leakage of loanable funds from the banking system. Thus the supply of loanable funds fall and it causes the rise in the cost of capital borrowed by the business community. It acts as a deterrent to the entrepreneurs, and existing firms also postpone their new investments. It causes fall in the production and a consequent fall in the employment. The disposable income in the hand of people falls which causes further fall in the demand for goods and services; and therefore the economic activities also slump. It causes further fall in production and further loss of employment. It becomes a vicious circle of unemployment due to the presence of black money.
Owing to the slowdown in the economic activities the tax collection by the government also falls. Therefore, the government is compelled to increase the rate of tax on income so that the ongoing government spendings may continue. A rise in the rate of taxation increases the cause and chances of further tax evasion. So, black money is like a virus which starts multiplying once it gets the slightest chance to infect an economy.
Prevention
As discussed earlier the root cause of black money is the circulation of paper and metal currencies. So, what is the alternative available to us, and what is the way out? A possible alternative of the paper and metallic currency is already available to the mankind. Many people are already using online fund transfer, debit card, credit card, ATM card, e-wallet, etc. for making or receiving payments. The technology already exists in almost all the economies of the world. Even the underdeveloped economies are also using technology for making or receiving payments. Some people may say that the cost of setting up and maintenance of such a system may be very high. It is true, but I feel the cost of circulating paper and metal currency is not too small. If we can abolish the physical form of cash, we would save a lot of money; and the virtual money would completely make sense in terms of cost effectiveness. The gigantic public sector enterprises like railways, insurance companies, oil and gas marketing companies, etc. who do not accept online or card payments should be encouraged to start accepting non-cash payments. If they charge any fee on non-cash payments, that should be abolished immediately. It would encourage people to use and possess white money.
If a person or an entity applies for a business or trade licence, they must be encouraged to have a charge or swipe machine, and an online payment system in place as a prerequisite before applying for such a licence. It would make it very simple for the buyers to make payments in non-cash mode; and the generation of black money would be minimised.
Countries like the UK has a £50 bill as the highest face value note! Why the underdeveloped countries cannot have lower denomination currency? For example, if we only have 10 rupee bills and if someone tries to hoard Rs.100 million, they would have to handle countless 10 rupee bills which is practically very difficult; and it would make it easier for the tax authorities and law enforcement agencies to detect black money and such people.
Unique Identification number or card
If every citizen of a country is issued a unique identification card or number on the basis of their fingerprints, retina print, etc., it would be very difficult_ if not impossible_ to hide one's identity; and it would prevent any type of identity theft. It would be mandatory for everyone to have the unique identification number to open a bank account or to buy or sell expensive items like gold, silver, or any other other precious metals, stocks like shares, debentures, etc. very expensive artifacts, e.g. yatch etc., and real estate etc. In this way, it would be very difficult for anyone to avoid paying taxes on income or on transactions. However, people should have the liberty to change their bank account just by visiting a desired bank-branch and revealing their unique identity number or any other number based on their unique identity number. It would make it impossible for people to possess black money in the near future.
The lesser it is the lesser is the chance of its growth and incentive to possess it. It would also make the tax authorities and law enforcement agencies to detect and deal with the fewer delinquent tax evaders.
Disclaimer:
•Any similarity with any person or entity_dead or alive_ need be considered a mere coincidence. The readers are expected to have only a readerlike views and attitude.
