A LOOK AT BLACK MONEY

A LOOK AT BLACK MONEY. WHAT IS BLACK MONEY? MAYBE WE SHOULD REVIEW SOME OF THE DIFFERENT TERMS FOR MONEY AND CURRENCY OK.

HOT MONEY = WE TALK A LOT ABOUT HOT MONEY WHICH IS CAPITAL THAT IS ALWAYS MOVING BETWEEN FINANCIAL INSTITUTIONS SEARCHING FOR YIELD OR A RETURN.

HARD CURRENCY = A STABLE CURRENCY OR SAFE CURRENCY IT IIS A CURRENCY THAT IS NOT LIKELY TO DEPRECIATE SUDDENLY OR HAVE VOLATILE SWINGS

GRAY MARKET/ PARALLEL MARKET = THE TRADE OF A COMMODITY THROUGH DIFFERENT CHANNELS AND LEGAL CHANNELS THAN ORIGINALLY DETERMINED

GRAY MONEY = IS MONEY THAT IS OBTAINED FROM TAX EVASION USUALLY FROM FUNDS HELD OFFSHORE

BLACK MARKET/BLACK MONEY = THE CURRENCY HAS BEEN OBTAINED THROUGH ILLEGAL CHANNELS AND NOT DECLARED FOR TAX PURPOSES AND NEEDS TO BE LAUNDERED.

SO NOW GOING FORWARD YOU WILL UNDERSTAND WHAT SOME OF THESE ARTICLES ARE TALKING ABOUT. LET’S HAVE A LOOK AT THE BLACK MONEY PROBLEM IN INDIA AND WHAT THEY CAME UP WITH TO GET SOME OF IT BACK.

Will India’s tax evasion amnesty scheme curb ‘black money’?
http://www.bbc.com/news/world-asia-india-37640399

Earlier this month, the Indian government announced that tens of thousands of people had taken advantage of a tax evasion amnesty scheme to declare more than $9.5bn (£7.3bn) in undisclosed incomes and assets.

It’s being seen as a financial windfall for the government and also being described as an unqualified success at tackling the country’s long-standing underground economy or black money problem.

Cash transactions are a way of life in India. They could involve simple purchases on the street, or large-scale ones involving suitcases stuffed with used notes to buy automobiles or even property.

A significant part of this cash flow is hidden from the government, to avoid paying tax.

Cleaning up this system and cracking down on black money has been a stated goal for India’s Narendra Modi-led government.
‘Secrecy’

From June this year, the government ran a highly visible campaign, entreating citizens to use a four-month window to declare previously undisclosed assets and incomes in exchange for complete immunity from prosecution as well as anonymity, so long as they paid 45% in taxes and penalties.

“We conducted a series of town-hall meetings all over the country,” says Hasmukh Adhia, India’s revenue secretary.

“All the top officials as well as local-level tax commissioners attended. People had a lot of doubts about the scheme but we assured them of the secrecy aspect,” he added.

All sorts of people took advantage of the amnesty scheme.

A group of street food vendors from Mumbai are said to have contributed $7.5m. A real estate developer from Gujarat, Naresh Agrawal, who says he has an annual turnover of $45m, declared the equivalent of $6m.

“The rules have become much more stringent now. If you get caught using black money to strike a real estate deal, you have to pay 100% tax and penalties. No builder wants to take that risk,” Mr Agrawal said.

“Earlier you were always nervous of getting caught. Now that I have disclosed everything, I can sleep easier.”
‘Property deals’

That’s the reason why many believes this scheme has worked so well, especially when compared to previous attempts, because the government is making it harder for people to conduct large cash transactions.

“A lot of black money would get exchanged as part of property deals,” says Shalini Jain, a tax consultant with global financial services company, Ernst and Young.

“Now the government has made it mandatory to cut tax at source in these transactions, so it brings to attention any property transaction. This has discouraged many from going ahead with it.”

By some estimates, the government could raise nearly $4.5bn from the scheme. But it may not be as good as it sounds.
Image copyright AP
Image caption Finance Minister Arun Jaitley said the amnesty scheme was a success

Only 3% of India’s 1.2 billion strong population are said to pay income tax, yet less than 65,000 people came forward during this amnesty programme.

Economist Arun Kumar points out that it’s only a fraction of the country’s undisclosed wealth.

“You have to account for not just undeclared income but also the wealth it generates after it is invested, used to buy property etc,” he says.

“By my estimate, India’s undisclosed wealth is about 60% of its GDP, which makes it around $1.35 trillion.”

And, the big fish may have got away.

“We have to wait for the final breakdown but it appears that most of those who came forward are small business owners or relatively small players. The big hoarders have either not taken part or have only disclosed a nominal amount of their holdings,” Prof Kumar adds.

The government says it plans to use the money to fund public welfare programs, so in effect it will plough the recovered wealth back into the economy.

It’s already been described as a resounding success. But it’s unlikely that it will make India’s black money problem go away.

EARLIER IN THE WEEK WE SAW INDIA MAKE THE DECISION TO MOVE ON WITH REMOVING THE 1000 RUPEE NOTE THIS WILL ELIMINATE SOME OF BLACK MONEY IN THAT ANYONE HOLDING THIS LARGE NOTE WILL HAVE TO CONFORM TO THE INTERNATIONAL STANDARD OF “WHERE DID YOU GET THIS” AS DEFINED IN ANT-MONEY LAUNDERING LAWS.

NOW WE SEE INDIA TRYING ONCE AGAIN TO GET THESE NOTES BACK BY GIVING AMNESTY FROM TAX EVASION CHARGES.

WE ARE GOING TO SEE MORE OF THIS AND THE REASON BEHIND COUNTRIES CLEANING UP THEIR FINANCIAL SYSTEM IS BECAUSE THEY WANT TO BE RELEVANT IN THE NEW SYSTEM. IN THE CASE OF INDIA THEY ARE REALLY TRYING TO MAKE A BID FOR SDR INCLUSION IN THE NEXT WEIGHTING OF THE BASKET IN 2020. THERE ARE MANY STEPS THEY NEED TO TAKE AND REMOVING THE LARGE NOTES AND REDUCING THE OPPORTUNITY FOR BLACK MONEY IS JUST A SMALL STEP FORWARD TO BEING READY FOR INTERNATIONALIZING THE RUPEE.

THANK YOU JOSEPH FOR SENDING IN THIS ARTICLE FOR DISCUSSION AND IF ANYONE HAS SOMETHING THEY WOULD LIKE TO DISCUSS PLEASE LEAVE ME A COMMENT OR SEND ME AN EMAIL.

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THANK YOU AND HAPPY SUNDAY

ML

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4 thoughts on “A LOOK AT BLACK MONEY

  • That was very helpful to understand these terms.
    Thank you for sharing.

    • MY LADIES

      THANK YOU ANN, I TRY TO MAKE SURE EVERYONE CAN FOLLOW ALONG AND NO ONE EVER GETS LOST..

  • R

    Awesome, ML! thanks.
    However, though its a start and those of us who’ve been to India and other countries; under-the-table cash, bartering, striking deals to get ‘tourists’ money and much more- there needs to be a bigger fix.
    What besides greed, corruption, malfeasance has the ‘system’ fostered with such behavior as Black and Gray money brings?
    The sheer amount of standard living that is taxed today is staggering compared to how the world functioned over 110 years ago before the federal reserve and central banking system.
    Does the overwhelming taxation burden drive this with the common man? Moreover the legal acumen of corporate attorneys dizzies one as they seek to find loopholes thereby saving their employer/clientele corporations from paying any tax or at the very least a fair share.
    I am all for looking at overhauling it. It is broken, flat tax or otherwise, it bears frugal accounting and unimpeachable eyes /audits to bring it around. Too many CAFR accounts, bogus government contractors with items well over-priced, complacent government budgets ‘wasting’ money end of fiscal year so not to lose allocations next year…. and on and on. Who knows this drill? I’ve worked in government, I’ve seen it.
    I certainly understand why black money rears its ugly head over the last several thousand years.
    Is it the nature of the Beast?
    Perhaps.
    Will Paris and G20 Agreements, Green Bonds, green lending and emerging markets fix it?
    Its seems like spreading icing on a very stale cake that’s gone moldy while waiting for the frosting. Time to bake a fresh one.

    .

    • MY LADIES

      AHA RENI THANK YOU FOR JOINING US. I HEAR ALL THAT YOU’RE SAYING AND I THINK AS YOU READ ALONG YOU WILL GET TO SEE MY OPINION OF THE STALE CAKE. I BELIEVE ALL ATTEMPTS TO PUMP MONEY INTO THE SYSTEM WE HAVE IS THE STALE CAKE.

      GENERATIONAL MONEY RENI HAS NO INTEREST IN HUGGING TREES I ASSURE YOU, BUT THIS GREEN BANKING IS THE NEW CAKE A BETTER CAKE IN THAT IT SERVES TO PURPOSES, THE FIRST MOST OBVIOUS IS IT PUTS GENERATIONAL WEALTH BACK TO WORK AND IN SO DOING THAT WEALTH OR PRIVATE CAPITAL IF YOU WILL IS GOING TO PARK FOR A VERY LONG TIME IN SOME TYPE OF EMERGING MARKET INFRASTRUCTURE. SO YES BY THE VERY NATURE OF THE BEAST IT WILL WORK THE DIFFERENCE THIS TIME AROUND IS A BIT MORE TRANSPARENCY AND THERE IS ACTUALLY SOMETHING WORKABLE COMING OUT THE OTHER SIDE OF IT.

      I AM DELIGHTED TO HAVE HERE AND HOPE YOU STICK AROUND..ML

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