Black Economy

Posted in Finance, Accounting and Economics Terms, Total Reads: 792
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Definition: Black Economy

Black economy refers to the economic activities that take place outside the country's scope of rules and laws. These are usually untraceable and hence untaxable financial dealings that are not accounted in country’s gross domestic product (GDP) calculations.


It is also known as underground economy where goods or services are traded illegally. Here the good or services traded may be legal, it’s the transaction that is illegal. This is done due to various reasons like –

• Avoidance of taxes

• Trade contraband commodities

• Edge of price control

 

For example: Purchasing gold from a jewellery shop without taking a printed bill of the transaction. In such case, the jeweller will not have to pay tax on this earning nor the buyer to make this entry into his account statement. The purchase of gold is legal activity but the non-payment of taxes classified it as a part of black economy.


Also making illegal goods/service available to market or make expensive item available for less money (such as pirated copy of software) form a part or black economy or parallel economy or shadow economy.


In India, black economy prevails in almost all sectors especially real estate, mining and education sector. Indian black economy form nearly three-fourth of the size of reported GDP. This is as per the report generated in august’14.

 

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