Black money final


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Black money final

  1. 1. Lot of Questions to Answer??? • Rs. 40k Crore: Spent by Indian Govt. on NREGA every year. • Rs. 1.25L Crores: Estimated cost of Implementation of Food Security Bill
  2. 2. Macroeconomics Presentation on BLACK MONEY Naveen Sounderajan Pratik Dukhande RajaSekkaran Ravi Kaushal Uday Kumar Sandeep Jannu
  3. 3. Agenda  Introduction  Causes of Black Money  Macro-Economic Perspective of Black Money (Inflation, Fiscal Deficit)  Methods to Estimate Black Money  Converting Black Money into White Money  Effects of Black Money  Govt. initiative to curb Black Money  Suggestions to Curb Black Money
  4. 4. Money Gone Black… • Black money is earned through illegal activity and, as such, is not taxed. Recipients of black money must hide it, spend it only in the underground economy, or attempt to give it the appearance of legitimacy through illegal money laundering. • Possible sources: Drug trafficking, Weapons trading, Terrorism, Prostitution, Selling counterfeit or stolen goods and selling pirated versions of copyrighted items such as software and musical recordings.
  5. 5. Causes of Black Money Shortage during War Scarcity of Resources Unfair Practices Faulty Taxation and Excise Duty Temptation of Tax evasion Downgrading of product Price Control Policy of Govt. Commodities Artificial scarcity Corruption Bribes Karnataka Coal Scam Elections, Party Funds BJP: Rs. 4000cores Source of funds??? Real Estate Transactions Devaluation of Property
  6. 6. • Understanding the implications of Black Money on • Inflation • GDP • Fiscal Deficit Macro-Economic Perspective
  7. 7. CausesofInflation Demand Pull BLACK MONEY Disposable Income Dearness Allowance RBI’s Monitory Policy Cost Push Wages Taxes Raw Materials Profit Margin
  8. 8. A Politician Declare yourself a farmer IT RaidUses PAN Share Market Deposit in Bank Black Money Swiss BankGold, Silver, Diamond Plays Safe Election Campaign Money Lenders YES YESNo No
  9. 9. Black Money & GDP
  10. 10. 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Swiss Bank Liabilities 23373 15000 11000 9000 9500 12100 Fiscal Deficit 148,600 250,000 330,100 412,000 369,000 520,000 Estimated Total Black Money 136,000 178,000 226,000 287,700 306,000 319,000 0 100000 200000 300000 400000 500000 600000AxisTitle Black Money and Fiscal Deficit
  11. 11. Methods to estimate black money: Input/output method: • Uses input/output ratio & input to calculate true output. • Calculates black money as the difference between declared output & expected output. • Useful only if applied to individual sectors but being used for the whole economy is useless. • Ignores structural changes in the economy including technology. Survey approach Fiscal approach
  12. 12. Methods to estimate black money: Velocity of money method: • Based on assumption that currency is used by both shadow & regular economy • Money is used to circulate incomes in both regular & shadow economies • Compare the velocity of money (average number of times currency changes hand in a year) to the income captured in the NAS (National Accounting System) • Difference gives the black component. • Assumption that NAS provides accounted incomes accurately cannot be true. • Large proportions of incomes from unorganized sectors are not captured correctly.
  13. 13. Methods to estimate black money: Kaldor’s approach: • Estimated non-salary income by breaking national income into: 1. Wages & salaries 2. Income of self-employed 3. Profit, interest, rent etc. • NDP – Wages & salaries = total non-salary income • Estimated actual non-salary income assessed to tax in each sector to find the total. • Estimated non-salary income above exemption limit – actual non-salary income assessed to tax = black money
  14. 14. Variations in Economists’ estimates:
  15. 15. Limitations: • Excludes income generated through illegal activities • Not standardized, no absolute figures/ small ranges, varies widely among economists. • Taxes other than income tax are evaded (sales tax, excise duty, stamp duty etc)
  16. 16. Money Laundering and Converting Black money into White Money
  17. 17. Money Laundering • The process of creating the appearance that large amounts of money obtained from serious crimes, such as drug trafficking or terrorist activity, originated from a legitimate source.
  18. 18. The Money Laundering Process Placement Layering Integration
  19. 19. DISGUISED OWNERSHIP CRIMINAL A HAWALA Company’s account, promoted by A in foreign Countries Company in India promoted by A Hands over Deposited Invests As Shares Dividends & Income As white money
  20. 20. MIXED SALES Increase Expenses with fake bills WHITE MONEY Both Mixed Pay less tax Converted
  21. 21. Long term bonds
  22. 22. Special Economic Zones Section 10AA of Income Tax exemption: • 100% Income Tax exemption on export income for 5 years. • 50% for next 5 years thereafter. • 50% of the ploughed back export profit for next 5 years. Showing the amount as exports from SEZ’s.
  23. 23. Ill Effects of Black Money on Indian Economy 1 • Mass Poverty: Inequitable distribution of income and hence purchasing power 2 • Low collection of taxes such as Income Tax, GST 3 • Low GDP and widening fiscal deficit 4 • Effective spikes of inflation in the economy 5 • Crippled growth of the infrastructure within the economy
  24. 24. Steps taken to curb Black Money… Till Now 1 • Successive waves of economic liberalization in India since the 1990s 2 • Voluntary disclosure scheme in 1975 3 • Demonetization of the notes of higher denomination 4 • Foreign Exchange and Prevention of Smuggling Activities Act to curb smuggling 5 • Withdraw from circulation all currency notes prior to 2005 6 • CBDT has begun its operation of trailing stashed bank accounts of the Indians in the tax havens (Tax Information Exchange Agreements)
  25. 25. Steps that can be taken to curb Black money Simplification of tax laws Implement GST and Direct taxes code Sign Bilateral International Agreements to ensure sharing of information on tax evaders Reforms in Sectors Vulnerable to Generation of Black Money: Bullion and Jewelry Sector, Real Estate, Cash Economy Strengthening of the Prosecution Mechanism and FIU , CEIB & other institutions Enhancing the Accountability of Auditors Incoming and outgoing funds to NGOs and religious trusts must be regulated and transparent.
  26. 26. Thank You!!!