Convertibility of Black money to white

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Convertibility of Black money to white

  1. 1. BLACK MONEY CONVERTABILITY FOR the Common Good Sourav Agarwal 07927803 07927816 Ramesh Thamotharan ENVIRONMENTAL ECONOMICS AND POLICY
  2. 2. What is Black Money ? • Concept • How does it flow in the Economy ?
  3. 3. Why Black Money is Generated ? 1. Tendency of people to increase Purchasing Power. 2. Conducting Transaction illegal in nature. 3. Inflation. 4. Corruption. 5. Laws. 6. Perception about Government.
  4. 4. Government, Its Policy, and Black Money Government is a expected to function for maximum good of all. Not possible !! Deviations do Exist and so do Anarchicts. Government should act as a regulator and interfere as minimum as possible.
  5. 5. Parallel economy as % of GDP • Developed countries – 8 to 20 % • Transition countries – 20 to 30 % • Developing countries – 25 to 50 %
  6. 6. Size of parallel economy • Rs 3034 crores in 1967-68 – 9.5 % of GDP • Rs. 46,867 crores in 1978-79 – 49 % of GDP – a 15-fold increase in 12 years • During 80s parallel economy grew faster than the GDP – 46.7 % vs 40 % (between 1980 and 1989)
  7. 7. Impact • High taxes result in cash transactions that go unaccounted • Under-declaration of deals skews market info • Affects the process of capital allocation • Upsets accuracy of economic forecasts • Erosion of public confidence on the system that leads to a vicious cycle
  8. 8. Have there been laws ? • Tax amnesties have been provided • Permanent (Settlement Commission) and temporary (VDIS) • To promote better tax compliance • In return for immunity from prosecution
  9. 9. Tax Amnesties in India Year Authority Income Revenue Total % of total disclosed Collected Revenue revenue 1951 N/A 70.20 10.89 N/A N/A 1965 Finance Act 52.18 30.80 N/A N/A 1965 Finance Act (2) 145.00 19.45 N/A N/A 1975 Voluntary 1587.89 249 2204 11.29 Disclosure 1985 Finance Act 10778.34 458.79 11858 3.87 1985 1997 Finance Act 33776.90 9729.02 38895 25.01 1997
  10. 10. Would regulations help ? • Incentivisation of above-board transactions • Value Added Tax (VAT) encourages better accounting • Vigilance may help a little (RTI, CVC) • Risk of being caught is not worth taking beyond a point • Frequent tax audits and high penalties for evasion
  11. 11. The way out • Why should there be a law ? – Size of the parallel economy is reason enough – The economic, social impact of not having one is very high • How should the law be ? – A mix of temporary and permanent provisions – More incentives for above-board transactions – Coupled with reduced taxes and better vigilance

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