Black Money

Topics to be covered
• What is Black Money

• Causes of Black Money generation

• Measuring/Estimation of Black Money

• Consequences/Impact of Black Money

• Committee Reports

• Measures Taken
What is black money
• Unaccounted money or the money that doesn’t appear in any of the
transactions

• It is the money the source of which is either unknown/legal/illegal

• It is also referred to as parallel economy or shadow economy, as it is very

difficult to distinguish between white and black money

• It’s a problem with a difference

 Black Money

Legal Sources Illegal Sources

Private Practice Bribes
Private Tuitions Smuggling
Illegal Betting
Causes
• High and complex tax structure

• High rates of stamp duty on real estate transactions

• Funding of elections

• Lack of deterrent punishment

• Licensing, Permits, Controls and quota systems

• Politician, bureaucratic and Industrialist nexus

• Havala and Round Tripping

Hawala/Money Laundering
INDIA USA

A A/B/C

Rupees Password
Password Dollars

Broker 1
Broker 2

Step 1 Step 2
Round Tripping
India
Black Money

Illegal routes (Money

Investments Laundering)

Safe Havens
 Estimation
• There are many estimates of black money and all of them vary as the
components/considerations/methodology vary
Organization Estimation

CBI ₹ 25 lakh crore

IMF 50% of GDP

NCAER 25% of GDP

World Bank 20% of GDP

NIPFP 75% of GDP

Why difficulty in estimation?
• Lack of effective data mining tools

• Lack of administrative and legal framework

• Unorganized economy
Consequences/Impact
• Leads to higher inequalities

• Leading to Inflation

• Difficulty in estimating National Income

• No incentive for work dedication

• Corruption
 Measures

Measures

Preventing the generation Recovering the money that has been generated
•Simplifying & rationalizing tax structure •Voluntary disclosure measures
•Rationalizing Property tax •Undisclosed Foreign Income & Assets Act
•Prevention of Money Laundering Act •Demonetization of currency notes
•Lokpal & Lokayukta
•GST
•Relaxing & Minimizing various controls
•Reducing administrative controls
Taxation Issues
• One of the important ways of prohibiting generation of black money is
to cover more and more assessees’ under tax bracket
• India is one of the lowest in terms of tax to GDP ratio

Country Tax to GDP ratio

India 17%
China 22%
Brazil 34%
Russia 23%
South Africa 27%

• India’s tax payers to voters ratio is a dismal 4% (it should have been around
23%)
The Undisclosed Foreign Income and Assets (Imposition of Tax) Act, 2015
Measures taken- The Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015
Money Laundering & PMLA
Income Disclosure Schemes
M C Joshi Committee (2011)
• Stringent punishment- corruption must attract punishment of 10 and 20 years

• TDS on gold purchases over Rs 2 lakh

• Enactment of Lokpal

• A compliance scheme (amnesty scheme)

• Auditing of all social welfare schemes

• Central reporting system

• Structural reforms-GST, NTT etc

Laxman Das Committee (2012)
• Strengthen the laws
• Investment by FIIs
• P-notes
• Routing of funds through Mauritius

• Plan to tackle black money menace

• Prevent its generation
• Discourage it’s use
• Detection
• Effective adjudication

• New laws should be framed to take care of cash economy

• Strengthen CBDT and CBEC

• Persons demitting the office should declare their assets

P-Notes
Havala Indian
FI-1 Dealings
Investor

FI-2
Invest in Indian
FII stock market

FI-3
P-Notes
• Recent Guidelines

• The transfers of P-notes can be done only after the approval of the issuer

• And only to those who are on a pre-approved list

• The issuer must submit information regarding who controls the management of the P
note subscriber
SIT - Justice M B Shah Committee
• Anti-Money laundering act to prohibit large cash transactions in trade, which are
usually the front for betting, drug trade etc

• Additional courts to established to decide the pending cases under the Income Tax
Act, establishment of Central KYC Registry

• Obtaining information on "beneficial ownership" of these instruments is of crucial

importance to prevent the misuse of P-Notes

• It has also said there is need to check the generation of black money in the education
sector and through donations to religious institutions and charities
Shell Companies
Benami Transactions (Prohibition) Amendment Act 2016

• Was introduced in Lok Sabha in May 2015

• The Bill seeks to amend the Benami Transactions Act, 1988

• The Act prohibits benami transactions and provides for confiscating benami
properties

• The amended definition will include

• If the transaction is made in a fictitious name
• The owner is not aware of denies knowledge of the ownership of the property
• The person providing the consideration for the property is not traceable
Benami Transactions (Prohibition) Amendment Act 2016

• The act establishes four authorities to conduct inquiries or

investigations regarding benami transactions
• Initiating Officer
• Approving Authority
• Administrator
• Adjudicating Authority

• Appellate Tribunal

• Penalty Provisions
Demonetisation
Pradhan Mantri Garib Kalyan Deposit Scheme 2016
• The scheme was open from December 17, 2016 till 31st March 2017

• Tax will be levied at 30% of the undisclosed income, surcharge @33% of tax and
penalty @10% of such income is payable

• Also 25% of the undisclosed income will be deposited in Pradhan Mantri Garib Kalyan
Deposit Scheme, 2016. The deposits are interest free and have a lock-in period of
four years.

• If the declarations are not made, then the taxation level may go up to 77.25% of such
income and further a penalty of 10% of the income will also be levied
The success of the measures depends on
• Introduction of stringent punishment

• Setting up of strong Lokpal

• Faster and efficient adjudication of pending cases

• Strong political will

• Breaking the political-bureaucratic nexus

• State funding of elections

DTAA - Mauritius Route
Round Tripping
India
Black Money

Illegal routes (Money

investments Laundering)

Safe Havens
State Funding – A Panacea?
• Various Committees
• Indrajit Gupta Committee (1998)
• Law Commission Report (1999)
• National Commission to Review the Working of the
Constitution, 2001
• Second Administrative Reforms Commission
• Law Commission Report 2015

• Views of ECI
• Structural changes are needed before the introduction

• Advantages/Dis-Advantages
State Funding – A Panacea?

Partial or
Complete

Elections

Exclusive
Cash or
or
kind
exhaustive
State Funding – A Panacea?
• As per IDEA (Institute for Democracy and Electoral
Assistance)
• More than 70 countries have either partial or
comprehensive state funding of elections
• Some of the issues involved are
• For one we do not know which is better-partial or complete
• The political parties are associations of citizens/individuals
• Once funding is provided other forms of collections must be
stopped
• It would work better if the number of political parties is less
Questions
• What is black money? Discuss the issues related to it

• Critically evaluate the reforms that have been introduced by the

government in taming the menace of black money

• Discuss the recommendations of SIT on Black money

• State funding of elections is not a panacea for black money in India-

Discuss