Black Money

Posted in Finance, Accounting and Economics Terms, Total Reads: 1118
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Definition: Black Money

Black money is basically a term that refers to money/funds earned by individuals, which they have not declared for tax purposes, but officially they are supposed to pay tax on it. The main reason for this is that the income is illegally obtained.


The sources through which people earn black money includes weapons trading, drug trafficking, prostitution, selling counterfeit or stolen goods, terrorism and selling pirated versions of originals like software and musical recordings. People who receive black money must spend it, hide it only in the underground economy, or make it look like legitimate money through illegal money laundering. Developing countries have large parts of their economy in the informal sector, which is difficult to regulate. This lack of regulation and monitoring reinforces Black Money in the economy. Black Money doesn’t contribute anything to the economic growth of an economy as it is undisclosed income. Basically the underground economy and corruption reinforce each other. Hence it is of upmost importance for any economy to stop this flow of black money, to do this the main things would be to stop corruption and regulate the laws/policies.


In India, Real Estate sector is the prime sector where black money is rampant, about $6 billion or about 30% of total real estate transactions are done via black money. This gives an indication of the amount of black money rampant in India. The main cause of black money in real estate is that there is immense corruption prevalent in government offices, so private builders prefer to pay bribe than to disclose complete land amount so as to avoid huge taxes. Its estimated about $1.4 trillion black money earned by Indians is stashed in Switzerland which is Tax Haven country.

 

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