“Black money” flourishes in environments where tax officials are corrupt, tax fraud is commonplace, and unlawful financial activities tolerate. Take the case of a man who sells his apartment for 1 million taka and receives 70 lakh taka in cash and a check for the remaining 900,000 taka. In the course of this transaction, Tk30 lakh becomes “black money,” also known as “unregistered money.” Continue reading to become an expert on sources of black money and learn everything you should know about it.
To avoid paying taxes on it, unlawfully obtained funds sometimes not declare to the appropriate authorities, hence the term “black money.” The second category includes money produced legitimately but not declared to the government.
Top 10 – Best Sources of Black Money
There is no single, agreed-upon definition of “black money” in the field of economics. Instead, phrases like “unaccounted economy,” “illegal economy,” and “irregular economy” are used interchangeably with “black money,” “black incomes,” and “parallel economy.” “Black money” refers, at its most fundamental level, to currency that keep secret from government tax collectors. To learn more, take a look at these sources of black money.
Trade Mispricing
Throughout history, export and import prices have been altered to facilitate the laundering of illicit funds. The OECD (Organization for Economic Co-operation and Development) claims that modern equipment make it simple to alter or fabricate counterfeit banknotes.
Illegal Activities
Theft, robbery, kidnapping, extortion, human trafficking, sexual exploitation, blackmail, and bribing government officials are all part of this category.
Tax Havens
In a handful of the world’s smallest nations, non-citizens are exempt from paying taxes since the laws are less stringent. To avoid paying their fair share of taxes, some wealthy individuals and corporations set up front corporations in tax havens. This is another sources of black money.
Mixed Sales
It’s standard practice due to the complexity involved, especially when the law firm in question handles large sums of money. This is especially true when dealing with financial matters in the legal field.
Gold and Jewelry
By making this purchase, the buyer can convert their untraceable wealth into precious metals. It also permits the dealer to retain any wealth that not show in the books, such as stock that is trading at a discount to its book value. This is one of the sources of black money.
Legal Things
The primary objective is to earn money lawfully while minimizing or eliminating tax liability. This practice is known as “tax evasion.” Unaccounted-for cash flows are the result of tax evasion, whether it’s the primary income tax or the secondary tax on commodities. High tax rates, disdain for authority and its laws, petty criminality, and the nature of the economy are all factors that contribute to tax evasion. It’s human nature to hunt for loopholes when tax rates are high.
Countries, where citizens dissatisfy with their government and its policies, are more likely to engage in tax evasion. Leaders who don’t pay their fair share of taxes send the wrong message to their constituents about the consequences of disobeying the law. Tax avoidance can encourage by even mild penalties.
A similar and effective disincentive is the bigger share of the economy in these countries that cannot account for by law or regulation. We typically see this. The proliferation of illicit funds is facilitated by globalization and increased economic freedom. Ours is a developing country, and it’s losing a lot of money due to transfer price manipulation, which is largely the fault of misguided transfer pricing practices by multinational corporations.
Public Procurement
The quantity, magnitude, variety, and complexity of state procurement have all increased dramatically during the past few decades. The Competition Commission of India estimates that annual spending on state procurement in India is between 10 and 11 lakh crore. The procurement procedures set up in such a way that corruption is highly likely to occur.
Benami Transactions
Benami transactions include one party transferring or holding property for the benefit of a third party, who ultimately ends up footing the bill for the value of the transferred or retained property. This type of transaction commonly use by those who wish to remain anonymous to authorities who monitor financial dealings beyond a specific threshold.
Hawala
Sending money this way is quick, simple, and inexpensive. Since it relies on secret codes and personal connections rather than publicized details, no personal data need disclose. This is good sources of black money.
Real Estate
Taxes on real estate transactions, such as stamp duty and capital gains tax, may discourage persons from making full tax disclosures as real estate values rise.
FAQ
How does Black Money Get Used?
In exchange for a check, some people will give their black money to a trusted relative or acquaintance. They use it as if it were a loan guarantee to temporarily convert their unlawful funds into legitimate ones.
Who is to Blame for the Black Money?
Black money goes to dishonest people who don’t mind taking. Criminals, smugglers, hoarders, tax cheats, and others fall into this category. According to writ petitions filed with the Supreme Court, criminals have stashed away more than nine hundred thousand billion rupees for their personal purposes, however the general public believes the figure is closer to twenty-two thousand billion.
Why is the Swiss Bank Known for having “Black Money”?
However, most experts agree that the information made public by Swiss banks accurately reflects the legal funds Indians have stashed away in those institutions. Before reaching Swiss institutions, criminals often utilize tax havens like Jersey Island and Havana.
Final Words
The primary principle is to modify transaction pricing to deceive tax authorities while benefiting the parties involved. The funds were not obtained dishonestly, but were deliberately concealed from tax authorities. This is why people refer to it as “black money.” Making black money sometimes involves engaging in activities that are unlawful, harmful to society, or both. Black money frequently finances activities that harm the country. This article discusses in detail about sources of black money. Read more about the disadvantages of paper money to gain greater knowledge.
