Impacts of black money

Tax that we pay can be broadly classified into direct and indirect taxes. Indirect taxes like VAT are introduced to limit/reduce consumption within acceptable limits. For example by imposing taxes on health injurious products, it enables to discourage their consumption too. These indirect taxes have nothing to do with the consumers’ earnings/assets. All are liable to pay the indirect taxes on the goods and services that they use. Where as direct taxes are imposed to introduce accountability to one’s earnings. Also the money gathered from tax collection can be used for various social developments like education, security, health programs etc. This in turn is inevitable for the smooth functioning of the government.

From the narrow one side view of an employee or any earning man, giving taxes looks like just taking a huge amount from his earnings unnecessarily rather than the amount required for the social security and benefits he enjoys. As one’s earnings shoots up, the direct taxes he supposed to file also increases proportionally. Here he starts thinking of forging some of his assets so that he will have to pay less tax to the government. As the people with this same mentality are not few in number, taxes misdirected will grow exponentially.

All those unreported and thereby untaxed earnings contribute to the black money. As we all know, there are hawala channels through which large chunks of money been transferred across nations, hand carried, to hide from governments’ notice. There has been reports of huge deposits in many banks and been withdrawn the same amount soon after. As banks fail to trace the source of such large wealth, they will soon enter markets washed clean or transferred into safe deposits like jewelry, real estate, stock markets etc.

Even when I was a small child, I used to hear that there are ‘so many’ jewelry shops in Koduvally, a rather small market in Calicut district. On a trip back home, as part of our games we counted the jewelry shops in Koduvally and to my surprise it came around 48. I used to wonder why the need for that much shops there or will it bring business to jewelers considering the competition. Later on, as hawala channels revealed there were strong links to this small town which was playing a major role in handling the black money.

Also a lot of safe havens are present across the world where anyone can happily deposit their black money. According to Swiss banking report, the total deposits by Indians in Swiss banks is around $1.4 trillion and tops the list. Contributors of this black money are our politicians, businessmen, criminals etc. Black money in India is around 20% of the GDP. So by shutting out the possible tax revenue of the government, this in short is developing a parallel/illegal economy, which hinders the economic growth of the country.

From a rather interesting analysis report, it has been seen that this parallel economy turned as a partial savior to India in the real estate sector, during recession. I.e. majority of the black money is flowing into the real estate, where, mostly half of the total investments will be declared by the consumers while taking full loan from banks. So even when banks started crumpling down in other countries owing to improbable mortgage options, customers in India hadn’t restrained from repaying the loans in order to cover up their tax frauds. This in turn helped the banks in their testing time.

This black money is not having the single impact of cutting out a major portion of the government’s possible revenue. Instead recently it’s been noted that this amount is been wired into individuals for terror strikes in India. So they have been used for buying arms and ammunition for anti social groups and thereby posing a serious security threat to the country. So this will have to be treated with required intensity so as not to hamper the growth of our mother India.