Business Ethics - Black Money

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INSTITUTE OF MANAGEMENT, NIRMA UNIVERSITY

Business Ethics

Individual assignment-1

Topic: - “Black Money”

Submitted by:                                                                       Submitted to:        

Name: Jainam Mehta                                                 Prof. Bindi Mehta

Roll No: 181421                                                        

Section: D        

Batch: MBA-FT (2018-2020)

Date of Submission: 21-08-2018

Black Money

INTRODUCTION:

Black money is the earned though not paying adequate tax or by performing illegal activity. Black money hampers the growth of the country as it creates a leakage in economy of country as the income is not reported. Vigilance over the cash movement is not kept under check and so taxes evasion and avoidance takes place. The black money generated once starts a regenerating it self as the money once generated is used to do illegal activity as well as speculation which in turns creates a vicious cycle.

DEFINITION:

Income illegally obtained or not declared for tax purposes is known as black money.

India: The Misuse and Abuse of Legal Provisions in Money Laundering

Many legal provisions are misused by businesses and other people to convert black money to white, to launder money aboard or to bring them back to India and to earn a huge amount of profit and perform illegal activity

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Billions of dollars of money passes to grey market. According to British intelligence estimate 500 billion dollars has been laundered all over the world last year. IMF and world bank pressure has helped to solve this problem as they are pressuring developing nations to ease import export policy. The developing countries need to do so as they regularly require funds from IMF and world bank. But then also laundering is going on and that to by use of many modus of operandi.

Section 80 HHE of the Income Tax Act exempts: This law is used to launder money and to save tax by computer software companies as its very tough to valuate the software as it comes under intellectual property right so its very easy to under valuate it and export the software and over valuate the export of software. This law has helped the companies to pay less tax and launder money abroad.

Section 80 HHC of the Indian Income Tax Act: An Indian company or a person resident in India and engaged in the business of export out of India is entitled to exemption of income tax on the profits earned in exports and retained for export business. This law was used by diamond industry to launder money abroad and in many cases, there was no real exports.

Gold smuggling: Gold was concealed in aluminium crates with a false bottom in which automobile exhaust gas analysers were packed. It was imported in India in name of automobile exhaust gas analysers in this operation almost 180 kg of gold was smuggled in India. Bulk of this sale procced was transferred to U.K. and when in came into limelight till than operators of this scam left India and went to U.K.

Raw materials and components: EXIM policy of India allowed import of certain raw materials and components without import duty with a condition that the goods are exported within 6 months of import. This policy was wrongly used by many manufacturers by selling the finished goods or raw materials and components directly in market and exporting a part of it or in many cases empty cases and gunny bags. The government incurred a huge loss in this as the purpose of increasing the exports and supporting business was wrongly used by business.

Importing books: Until 1990 import of books was exempted from custom duty for the easy flow of knowledge. By using this law old outdated journals and books(scraps) where imported to send money abroad as payment for imports and laundering took place. It was very easy to execute it as there was very little watch as it was under open general license.

Creating investment companies: Big business houses create their own investment companies which collect money as deposits from various dummy people. It’s essentially their own money which is again lend to their own companies. This gives them easy way to use the money in the way they want and to influence the stock prices as well as to pay less tax and convert their black money into white and vice versa.

Organising fund-raising functions and charitable trust: Politicians usually use this method convert their black money into white by organising fund-raising function in which the dummy persons give money in their name of which the real owner is the politician or a businessman.

Charitable trust is also used in same way to convert black money into white in name of opening a hospital or any other social service organisation.

Major construction contracts: Construction of roads and infrastructure requires huge cash and its very easy to show huge profit in these contracts and this helps in converting black money into which without actually earring it from that business.

Construction of hotels and cinema theatre: by contracting cinema theatre and hotels and showing good occupancy rate it becomes a tool to convert black money into white as its not easy to track that was there a real occupancy or not for which the false bill was made. The tax needs to be paid for this but its much less and easy way to consistently convert the colour of money.

The effect of tax amnesty on anti-money laundering in Bangladesh

The tax amnesty has created a huge amount of black money in Bangladesh economy. As per some research it now accounts for 60%-80% of formal economy. The strength of it is also increasing in last 21 years. The anti-money laundering act has 21 offences which are considered as laundering but it doesn’t include tax evasion in it. The reason behind it is that most amount of black money is created in the economy by politicians, bureaucrats and businessmen’s. Bangladesh is considered in the list of most corrupt countries in the world which is the reason why it has huge amount of black money.