Black Money Essay in English

By | May 9, 2019

The problem of unaccounted money, or black moneyas it is commonly known, has attracted a good deal of attention by the present regime. Since the raid on the lockers of some well known people in the major cities in Pakistan, the unearthing of black money has caused considerable excitement, both in the official as well as private circles. Various measures have been adopted to find out black money and make it a legal acquisition; the measures being of voluntary as well as compulsory nature. It has, therefore, become important to study this problem more closely and carefully analyze the various issues involved in it.

Black money or unaccounted money is that part of the total money supply or total money income of the people, which is either not acquired in a legal transaction, or which is not shown in the income tax returns. Whenever an individual conducts any illegal transaction such as selling prohibited goods like country liquor in areas where drinking is prohibited by law, or whenever he sells things in the black market, the seller cannot show such transactions in his books. Hence this income acquires the shape of black money. Similarly, when a certain income is concealed from tax authorities, it is not shown in the proper records, it is also called black money. The holder of such money is afraid of spending such money in an open market, where the transactions can be correctly recorded. Such money cannot find a place in bank deposits or legitimate investment. It is usually spent upon shady transactions such as giving of bribes, for extravagant entertainments and for items of conspicuous consumption. [the_ad id=”17141″]

As has already been said, black money generally results from illegal transactions or black markets Due to an acute shortage of certain goods they are sold in the black markets. For example, a car, whose legitimate price is said twenty thousand rupees, is generally sold m the market for twenty-five thousand rupees. Now. the seller of this car cannot show the whole amount of money received in his account. He would only show that he has sold the car for twenty thousand rupees, while the rest of the money would be unaccounted. This excess of market price over the legitimate price becomes black money.

Similarly money received by people in the form of bribes and other illegal charges also forms a part of black money. The government of this country has imposed a very large number of restrictions, some of which are for the purpose of general administration, while the others are necessary for economic planning. But greater the number of restrictions, the larger is the scope of corruption. If for even ordinary things one has to acquire a. license, a permit or a ration card; then he would naturally try to acquire it by some method or the other. He may have to bribe the concerned authorities for grant of the permit or license. With the lower level of morality, corruption is in full swing: This gives rise to the accumulation of black money in the hands of those who are in a position to charge bribes, etc.

in Further, the rates of personal and business taxes are very high is this country. If a man gives a sincere and honest account of, his income, he has to pay a very large amount of income tax: Besides, he may have to pay many more taxes. But if he can manipulate his accounts and show a lower level of income, he can save a sufficient amount of money. Therefore individuals and business concerns try to manipulate their accounts in such a way that, they show an income much lower than what it actually is, and thus evade the taxes. The income which has not been shown becomes a part of the black money because it cannot be used in any transaction in the open market. If it is used, the authorities might ask for the source from where it was acquired, and whether a tax was paid on it or not. Therefore such undisclosed incomes remain in circulation only in the black market. They are used only for illegitimate transactions, which further give rise to black money.[the_ad id=”17142″]

It is common knowledge that almost all the businessmen keep separate types of account books to be used for separate purposes. The books submitted to the income tax and sales tax authorities would be different from those which are kept for actual accounts. Even the corporate sector, which works under various statutory restrictions, is a great offender in the matter of taxation. Operations are concluded through secret accounts and transactions are not entered into the regular account books by mutual consent. This encourages the growth of black money in the economy.

Right from the initial stages such as the purchase of raw materials, stores and fuel to the stage of the sale of finished products, much of the accounts are manipulated and many of the items are not shown at all. This is because each one of the sellers agrees not to show any of such items in his hooks. In other words, a whole lot of people from the beginning to the end of the business processes, are all taking part in a grand conspiracy to defraud the government of the revenues.

Existence of black money in the country is an economic evil which is dangerous for the society from both social and political angles. Below are mentioned some of the chief dangers of black money.

Black money is a great economic evil. The economic structure which has been built by the government through a long process of regulation and controls for the sound and healthy development of the economy, maybe all shattered and blown to pieces by this black money. If, for example, the government has imposed a restriction on consumption with a view to encourage savings and capital formation for the future growth of the economy, black money would defeat this purpose by encouraging conspicuous consumption. Thus the whole object of those restrictions would be defeated and the growth of the economy would be paralyzed. The entire economic structure would be distorted and the whole planning would become useless. [the_ad id=”17150″]

Secondly, the existence of black money is the testimony of a tremendous loss of revenue to the government. All money which, goes underground represents the amount on which tax has not been paid. Not only that the tax has not been paid on the existing amount of black money but also the government would not get any revenue on the transactions conducted in future with the help of black money since black money can be used only for illegitimate transactions. Therefore black money shows not only the existing but also the potential loss of revenue to the government.

Thirdly, it is sometimes said that black money rises prices and thus creates inflation. The reason is that those people who have black money can bid up commodity prices and thus generate inflationary tendencies. Black money in the hands of speculators and ‘stockists would lead to holding back the stocks and thus create artificial scarcity, Hence prices are bound to rise and thus lead to inflation. But to say that the existence of black money must always lead to inflation is not very correct. In fact, as the modern economy. analysis suggests black money may not lead to inflation. This is because the people who have a sufficiently large amount of black money, are the rich people who spend it on items of conspicuous consumption. They do not need to spend it on food, sugar or fuel since they have already enough of these things. Thus the prices which may rise because of the existence of black money are those of the articles of luxury consumption and not of those goods which the masses consume. Further, black money is generally spent secretly. and not in the open market. The velocity of calculation of black money being very low, it has not much to contribute to a general rise of prices. Lastly, the greatest socially undesirable consequence of black money is that it encourages corruption. It vitiates the entire moral climate of society. Those people who have enough money to bribe the people in authority can get everything done. The poor honest citizens, on the other hand, are being constantly harassed. Moral values are fast disappearing from our society. And if this continues, this would be a disgrace to the whole nation. [the_ad id=”17144″]

Since black money is our evil and source of many troubles, steps should be taken to weed out this menace. The measures taken should be directed both at

  • unearthing the existing black money.
  • preventing its accumulation in the future. Let us discuss these in detail.

Voluntary Disclosures

People should be asked to voluntarily disclose their wealth. They should be told by the government that those who voluntarily submit the accounts of their wealth and income, which has not been so far disclosed, will be charged a lower rate of tax.

Surprise Raids

When the period of voluntary disclosures is over, the government should organize surprise raids at bank lockers and other places where black money is being kept. Therefore it is suggested that the government should intensify the raids and penalize those people who have defrauded the government of their legitimate share


This perhaps is the most drastic remedy that is being suggested by some people The existing money should be declared to cease to be the legal tender with effect from some fixed date’ from which the new currency would come into existence. People should be asked to convert their existing money holding for the new money. This would naturally bring out all the black money existing in the economy. But demonetization is too harsh a measure, and the government is in no mood to adopt this method in the near future.

[the_ad id=”17151″]All these methods are suggested for und thing the existing amount of black money. But once unearthed, it would again start accumulating, if the basic causes which give rise to it are not corrected. Therefore it is suggested to adopt remedial measures.

  • Removal of shortages. If the problem of black money is to be settled finally, we should immediately strive to remove shortages in the economy. This would reduce the number of controls and regulations and hence there will be less chance for earning black money.
  • Streamlining administration. The government should overhaul and streamline its own administration. Corruption should be eliminated. This would eliminate the accumulation of illegal incomes with those people in whom authority is vested.
  • Reductions in the rates of taxation. People evade taxes because the rate of taxes is very high. Higher the rate of tax, greater is the benefit by evading it. Hence larger is the evasion. If the rates of tax are reduced, probably people would not like to be dishonest and pay all their dues to the government. The laws against tax evasions should also be tightened further.

The government has already adopted a number of steps to unearth black money. Measures to encourage voluntary disclosures have already been announced. Raids have also been organized in various places. Tax evaders are likely to be penalized heavily while those who voluntarily disclose their incomes would get tax concessions. But even after taking all these measures, the problem remains still unsolved. Therefore, there is a need to do some more thinking and adopt some more measures to tackle it.

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