Black Money

Black money is a great problem in the economy. It is mainly associated with income and
property taxes. An individual or institution has to pay property or income tax if the amount of
property or income exceeds a certain limit. This limit is termed as ‘exemption limit’. Many
individuals or institutions do not place their account of assets to the authority to bypass the
income or property tax. This unaccounted income or property is called black income or black
property and money value of it is termed as black money.

According to Wanchoo Committee of India, the term black money is generally used to denote
unaccounted money or concealed income and/or wealth as well money involved in transactions
wholly or partly suppressed.

So, we can say if any individual or institution has such type of money account of which is not
placed to tax authority for avoiding tax obligation then it is called black money.

Black Money can be computed by using the following formula:

BI = TTI- TAI

Where, BI= Black income/Money, TTI = Total taxable income and TAI = Total actually
assessed income

Creation of black money

Black Money can be created in the following ways:

i. Unorganized money market- unorganized credit institutions and para-banking system;

ii. Goods selling without keeping written records;
iii. Bribe;
iv. Subscription without appropriate account under the names of political and others
organizations;
v. Legally earned money but used in illegal business;
vi. Showing lower value of export and higher value of import;
vii. Legal business but profit is not declared fully;
viii. Showing lower value in deed in case of land selling;
ix. Actual house rent is not shown in case of house renting.

Measures to Control Black Money

The problem of black money has to be tackled in a realistic and at the same time intelligent
manner. Since it is not a problem with the poor but with the well off people, it should be handled
carefully. The following measures will be of some help in controlling, if not eliminating, this
problem.
1. The standards of public morality must be raised. In this regard, politicians, ministers, senior
civil servants, intellectuals and the media people must play an important role. They must set up
an example for others to emulate by paying taxes properly.

2. Public expenditure must come down and there must be stringent monitoring of expenditure,
especially of public sector projects.

3. There must be much more effective supervision of private sector investment expenditures,
particularly where there is greater reliance on development finance institutions and banks.

4. Tax system must be realistic. Unduly high rates of tax are counter-productive. It would lead to
tax evasion — whether it is income tax, wealth tax, capital gains tax or transfer tax on real estate
— and at a later stage creating black money.

6. Tax collection machinery must be made more efficient than what it is now. Honest officials
in this department must be profusely rewarded.

7. Attractive incentives must be given for voluntary disclosures of income

8. A thorough overhauling of the economic intelligence unit must be made. Trusted officials
must be recruited for this department.

9. Administrative corruption at different levels must be stopped.

10. Exempting tax on money spent on house construction may help mostly middle class salaried
people who are normally made to pay taxes without fail.

11. Deterrent punishment must be given to those who are found guilty of profiteering, black-
marketing and smuggling.

With regard to this problem the harsh truth is that the government policies are the biggest sources
of black money generation. Hence, the government must take extra-precaution in framing its
policies to give no scope for black money.

Assignment: Effect of Black Money on the Economy of Bangladesh

Money Laundering

Money laundering is a term used to describe a scheme in which criminals try to disguise the
identity, original ownership, and destination of money that they have obtained through criminal
conduct. The laundering is done with the intention of making it seem that the proceeds have
come from a legitimate source.

Simply, the act of disguising the source or true nature of money obtained through illegal means
is called Money Laundering.
Process of Money Laundering

Money laundering is not a single act but is in fact a process that is accomplished in three basic
steps.

1. Placement

This is the first stage in the washing cycle. The first stage of money laundering is when the
individual participating in criminal activity places cash proceeds into the financial system. This
is done so that they can get rid of the cash that is derived from criminal sources. It can be unsafe
for people to hold onto a large amount of cash at one time, so they may try to dump the cash
somewhere that provides greater security. This is often done by exchanging illegal funds in
smaller and less conspicuous amounts. The funds may be exchanged for other liquid forms of
cash, such as traveler checks, bank drafts or savings account deposits.

2. Layering

Layering is the process of separating the proceeds of criminal activity from their origin through
the use of many different techniques to layer the funds. These include using multiple banks and
accounts, layers of complex financial transactions such as converting cash into traveler’s checks,
money orders, wire transfers, letters of credit, stocks, bonds, or purchasing valuable assets, such
as art or jewelry. All these transactions are designed to disguise the audit trail and provide
anonymity.

3. Integration

It is the stage at which laundered funds are reintroduced into the legitimate economy, appearing
to have originated from a legitimate source. Integration is the final stage of the process, whereby
criminally derived property that has been placed and layered is returned (integrated) to the
legitimate economic and financial system and is assimilated with all other assets in the system.
Integration of the “cleaned” money into the economy is accomplished by the launderer making it
appear to have been legally earned. By this stage, it is exceedingly difficult to distinguish legal
and illegal wealth.

Not all money laundering transactions go through this three-stage process. The three basic stages
may occur as separate and distinct phases or may occur simultaneously or, more commonly, they
may overlap.