This ‘sin’ economy, comprising fake and counterfeit products, smuggled and pirated goods, unauthorised gambling, bribery and prostitution, among a host of other sinister activities that go unaccounted, has a draining effect on the economy.
The CPI ranks countries according to perception of corruption in the public sector.The 2010 CPI draws on di
According to the latest estimate of Central Statistical Organisation (CSO), the size of the Indian economy is around Rs 61,64,000 crore. If black money is declared by individuals or corporate houses as income, it becomes legal and would be taxed at 30%. If all the estimated black money is declared, it could generate a tax revenue of Rs 7,50,000 crore for the government! This is more than total tax collection at Rs 6,41,000 crore for 2009-10. Kumar puts the potential tax revenue figure much higher at around Rs 10,00,000 crore.
Over 800 million pirated DVDs discs are consumed in India annually and 1 million DVD players are added every month in India. If there was no piracy, the estimated revenues earned by the government by way to the various taxes would be around Rs 1,000 crore per annum, said an industry official.
Consequences of black money: Decrease in govt. revenues; decrease in quality & quantity of public goods & services; higher taxes & inflation; difficulty in monetary & fiscal policy formulation; increase in criminal activities. Breeding of Black Money: Clandestine international arms, weapons and nuclear deals, , expenditures incurred by security and intelligence agencies at home and abroad, financing of terrorist activities, phantom Aid and projects, all sorts of elections, kickbacks from ADP, public procurements and purchases, tender and public works, properties sales and purchase, bribes and speed money, deals with foreign investors in power, mining, oil and gas exploration, money laundering by multinational companies, big business houses and others to tax havens, drug trafficking, smuggling, extortion, transfer, promotion and postings, tax evasion by businessmen, politicians, lawyers, engineers, doctors, consultants and research scholars, high officials and elites of the society holding unaccounted wealth power and properties. Illicit transactions of corrupt politicians, professionals, and NGOs so that black money from inappropriate sources may be illegally used for personal gains.
"What ... identifies an area as a tax haven is the existence of a composite tax structure established deliberately to take advantage of, and exploit, a worldwide demand for opportunities to engage in tax avoidance." Recycling Black Money: Firms set up offshore "subsidiaries" in a tax haven which, on their books, perform functions that let them cut onshore taxes. They may sell their own "logo" to the subsidiary and then pay a high price to "rent" it back, deducting "rent" as expense. They may move money to the subsidiary and "borrow" it back, deducting interest payments. If several of their subsidiaries are involved in a deal, the firms may grossly inflate profits assigned to those in offshore tax havens, which levy no or minimal taxes on "profits". There are some 55 "offshore" tax haven zones, including legendary Switzerland; the Caribbean with money-laundries Grand Cayman, Antigua, Aruba and the British Virgin Islands; European favorites Luxembourg, Liechtenstein, Monaco, Austria, Cyprus; and British Channel Islands Jersey, Guernsey, Isle of Man.
The ‘double taxation avoidance treaty’ - to make sure that businesses that operated in both countries didn’t get taxed twice Officials in various arms of the government suspect that there are unscrupulous Indian businessmen who are sending out money through the hawala route, and then bringing it back as legal funds via Mauritius.In April-June this year, a total of Rs 4,165 crore came in through Mauritius to India — as against Rs 1,105 crore from the US. By the end of the year, the money flowing in from Mauritius to India could be as high as Rs 15,000 crore. In 2005-06, a total of Rs 11,441 crore came in through this route, more than double the Rs 5,141 crore in 2004-05, which in turn was almost double the Rs 2,609 crore that had come in in 2003-04. Compare that with the relatively piddlyRs 2,210 crore that came in through the US in 2005-06. Coinciding with the opening up of the Indian economy in 1991-92, Mauritius passed a law that allowed any foreign investor to set up a global business company (GBC-1) in the country provided they fulfiled some minimal conditions and paid a nominal fee to the Mauritian authority. These companies could operate in complete secrecy, would pay only a nominal tax (3 per cent net), have no real operations or assets within Mauritius, but enjoy all the privileges of the Double Taxation Avoidance Convention (DTAC).
Mauritius is providing an easy way for some less scrupulous Indian businesses to ‘round trip’ their money and bring it back into India through this route. Round tripping occurs when capital that originates in one country, say, India, goes through another country, usually an offshore tax haven, and then re-enters the first country (India) as ‘foreign’ investment. A senior investigation wing official explains the possible modus operandi of this round tripping. “Money leaves India through inflation of exports or imports or for some other ostensible business purpose or through the hawala route. It goes to another country and comes back into India through the Mauritius route. It is not easy to track down the money trail.”
Black economy in india
Black Economy <br />
What is black economy?<br />Black Economy: That portion of the income of a nation that remains illegally undeclared either as a result of payment in kind or as a means of tax avoidance.<br />Black Money: The money that is generated by activities that are kept secret in the sense that these are not reported to the authorities. As this money is also not accounted to the fiscal authorities.<br />
Corruption Perception Index (Cpi)<br />1<br /> Denmark, New Zealand, Singapore<br />7<br /> Australia<br /> And where’s India????? <br />87<br />
india’sblack economy<br />According to the latest estimate of Central Statistical Organisation (CSO), the size of the Indian economy is around Rs 61,64,000 crore. <br />Black Economy is 40% of India's gross domestic product (GDP).<br />Thus, the size of the black economy, taking it at 40% of GDP, is around Rs 25,00,000 crore or around $500 billion. <br />If all the estimated black money is declared, it could generate a tax revenue of Rs 7,50,000 crore for the government! This is more than total tax collection at Rs 6,41,000 crore for 2009-10. <br />
Sources of generation<br />Control and licensing system<br />Tax structure<br />Donation to political parties<br />Ineffective enforcement of tax laws<br />Generation of black money in the public sector<br />Smuggling<br />
IMPACT<br />Leads to misdirection of precious national resources<br />Worsened income distribution<br />Big sized unreported segment of the economy<br />Transfer of funds from India to foreign countries<br />New black money culture in business world<br />Corruption in the society<br />Corruption of the entire political scenario<br />
Model of black income generation in legal activities<br />Profit (P) = Revenue (R) – Cost (C) …(1)<br />Profit may be white (what is declared) or black (what is not declared). The declared profit appears in the income statement of the business and is called the balance sheet profit. The undeclared profit or black profit is called off-balance sheet profit. It accrues directly to the management of the business.<br />P = White Profit (Pw) + Black Profit ( Pb) …(2)<br />Further, P = Actual R – Actual C …(3)<br />Black Profit (Pb) is generated by declaring lower revenue and/or overstating costs.<br />
Tax havens<br />Country or Territory where certain taxes are levied at a low rate or not at all.<br />Central feature - Its laws and other measures can be used to evade or avoid the tax laws or regulations of other jurisdictions.<br />55 "offshore" tax haven zones<br />Recycling Black Money: Firms set up offshore "subsidiaries" in a tax haven which, on their books, perform functions that let them cut onshore taxes.<br />
India’s favorite Tax haven - Mauritius<br />Misuse of ‘double taxation avoidance treaty’ signed in 1983<br />Havala route<br />April-June 2010 <br />Investment from the US – Rs.1,105 crore<br />Investment from the Mauritius – Rs.4,165 crore<br />Increasingly being used by Indian businessmen as well to launder money, shore up their holdings in their own companies<br />Combination of the treaty and some Mauritian laws<br />Nominal fee<br />Nominal tax (3% net)<br />
Why India wants change???<br />Treaty originally proposed to help Mauritian firms to invest in India and vice versa but increasingly being used by global investors instead.<br />No proof of who owns the management companies<br />Round Tripping of money<br />Revenue loss to India – Tax loss on profits on only 20 companies was Rs.140 crore.<br />Gain for Mauritius - Rs.100 crore a year in terms of license fees, renewal fees.<br />
Voluntary disclosure of income scheme (VDIS) scheme<br />Tax amnesty scheme<br />Introduced on June 18, 1997. Continued till December 31 2008<br />Tax evaders would be asked to voluntarily disclose their non-taxed income.<br />Source won’t be questioned & penalty won’t be levied<br />Tax payable 30% for individuals & 35% for other declarants<br />SUCCESS – 3.5 lakh individuals – Tax collected – Rs.7800 crore<br />Controversies<br />
Steps that could be taken to reduce black money<br />Transparent and Accountable governance<br />E-Money<br />You and I <br />