what is black money ?
Black money is any money on which tax is not paid to the government. This is the universally agreed upon definition and most applicable to India. The process of transferring/moving this money is called laundering as opposed to 'transferring' because the money is essentially illegal and transfer/transaction has a positive connotation to them.
It's initiation is easy. If you earn money and you do not pay tax on it, wallah, you have just created black money. This is fairly common in India.
Its effect on economic growth? This is easy. Consider a continuously running water pump. How would the efficiency of this pump be affected if there was a water leak somewhere? Slowly all the water will run out through this leak and the pump would run dry and eventually collapse. An economy works in the same way, you earn money, you pay taxes to the government, government provides basic services, you pay taxes on it and life goes on. Black money disturbs this iterative process by contributing to financial leakage.
Black money is also a threat to national security. Money laundering is a very common way of terrorist financing.
But the most important negative effect of black money on an economy is in itsopportunity cost. For a growing economy like India, time is of essence. We cannot afford to be complacent at such a crucial stage of our development. All black money represents the hundreds of beneficial projects we could have executed had we had that money. We could have build infrastructure, provided better health services, developed SME's etc if the money that is rightfully the governments' had not been diverted away.
It's initiation is easy. If you earn money and you do not pay tax on it, wallah, you have just created black money. This is fairly common in India.
- You* go to a local convenience store ( kirana shop), buy something and do not ask for a receipt. That purchase is not recorded in the accounts of that store, he does not pay sales tax on it and the money you have paid him essentially becomes black money.
- You rent yourself an unregistered cab in New Delhi. There is no tax on that rent because the vehicle is not registered as a commercial cab. *swush* Black money.
- [Very very common]*** You buy/sell real estate/land. The cost of it is 100,000**. You pay 10,000 officially and pay 12 percent tax on it. You pay the remaining 90,000 'below the table' and do not pay tax on it. That 90,000 is black money.
Its effect on economic growth? This is easy. Consider a continuously running water pump. How would the efficiency of this pump be affected if there was a water leak somewhere? Slowly all the water will run out through this leak and the pump would run dry and eventually collapse. An economy works in the same way, you earn money, you pay taxes to the government, government provides basic services, you pay taxes on it and life goes on. Black money disturbs this iterative process by contributing to financial leakage.
Black money is also a threat to national security. Money laundering is a very common way of terrorist financing.
But the most important negative effect of black money on an economy is in itsopportunity cost. For a growing economy like India, time is of essence. We cannot afford to be complacent at such a crucial stage of our development. All black money represents the hundreds of beneficial projects we could have executed had we had that money. We could have build infrastructure, provided better health services, developed SME's etc if the money that is rightfully the governments' had not been diverted away.
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