Exam = IES / ISS of UPSC 2023
Paper = Indian Economics
Question = Enumerate the recent initiatives by the government to address the issues related to black money and parallel economy.
Answer
Black money and parallel economy are two interrelated concepts that affect the economic and social well-being of a country.
Black money is the money that is generated by activities that are illegal or hidden from the tax authorities. For example, if someone earns money by selling drugs, bribing officials, or evading taxes, that money is considered black money. Black money is also called unaccounted money, dirty money, or underground wealth.
Parallel economy is the part of the economy that operates outside the official or formal sector. It consists of all the transactions and activities that involve black money or are not reported to the government. For example, if someone buys a property for Rs. 1 crore but registers it for Rs. 60 lakhs and pays the rest in cash, that transaction is part of the parallel economy. Parallel economy is also called black economy, shadow economy, or unofficial economy.
Some of the recent initiatives by the government to address the issues related to black money and parallel economy are:
Demonetisation: In November 2016, the government announced the withdrawal of Rs. 500 and Rs. 1000 currency notes, which accounted for about 86% of the total currency in circulation. The aim was to curb the use of cash for illicit activities, such as tax evasion, corruption, terrorism, and counterfeit currency. The move also encouraged the adoption of digital payments and formalisation of the economy.
Goods and Services Tax (GST): In July 2017, the government implemented the GST, which replaced multiple indirect taxes with a single tax regime. The GST aimed to simplify the tax system, broaden the tax base, improve compliance, reduce tax evasion, and enhance transparency. The GST also enabled the creation of a common national market and reduced the cascading effect of taxes.
Benami Transactions (Prohibition) Amendment Act, 2016: This act strengthened the existing law against benami transactions, which are transactions where the real owner of a property is not the one in whose name it is registered. The act empowered the authorities to confiscate benami properties and impose penalties and imprisonment on those involved in such transactions.
Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015: This act targeted those who had undisclosed foreign assets and income and did not pay taxes on them in India. The act provided a one-time compliance window for such persons to declare their foreign assets and pay a tax and penalty on them. The act also prescribed stringent civil and criminal consequences for those who failed to comply or made false declarations.
Pradhan Mantri Garib Kalyan Yojana (PMGKY): This scheme was launched in December 2016 as a part of the demonetization drive. It offered an opportunity for those who had unaccounted cash to deposit it in banks and pay a tax, surcharge, and penalty on it. The scheme also required the declarants to invest 25% of their declared income in a bond scheme for four years. The scheme aimed to use the revenue generated from the tax and penalty to fund welfare schemes for the poor.
Operation Clean Money: This initiative was launched in January 2017 to verify the cash deposits made during the demonetization period. The Income Tax Department used data analytics and online verification tools to identify and scrutinise those who made high-value or suspicious deposits. The initiative also involved educating and encouraging taxpayers to comply with their tax obligations.
Exchange of Information Agreements: The government signed various bilateral and multilateral agreements with other countries and jurisdictions to exchange information on financial transactions and tax matters. These agreements included Automatic Exchange of Information (AEOI), Tax Information Exchange Agreements (TIEAs), Double Taxation Avoidance Agreements (DTAAs), and Mutual Legal Assistance Treaties (MLATs). These agreements enabled the government to access information on offshore accounts and assets held by Indian residents and take action against tax evaders.
Amendments to the Prevention of Money Laundering Act (PMLA): The government amended the PMLA in 2018 and 2019 to widen its scope and strengthen its provisions. The amendments included expanding the definition of money laundering, increasing the punishment for money laundering, empowering the Enforcement Directorate to attach properties equivalent to the value of proceeds of crime, enabling trial by special courts, and allowing for provisional attachment of properties in cases of fugitive economic offenders.
Income Tax Reforms: The government introduced various reforms in the income tax system to simplify procedures, reduce litigation, increase transparency, and promote compliance. Some of these reforms included faceless assessment, faceless appeal, faceless penalty, dispute resolution committee, vivad se vishwas scheme, pre-filled income tax returns, e-assessment centre, e-pan facility, etc.
Digital Payments and Electronic Transactions: The government promoted the use of digital payments and electronic transactions as a means to reduce cash transactions, increase financial inclusion, improve traceability, and prevent black money generation. Some of the initiatives taken in this regard included launching BHIM app, UPI platform, Aadhaar-enabled payment system, RuPay cards, etc., providing incentives for digital payments such as discounts, cashbacks, rewards, etc., mandating PAN/Aadhaar for high-value transactions, imposing limits on cash transactions, etc.