Financial and Systematic Fraud: Final Submission Black Money and Tax Havens

Tax evasion occurs when individuals deliberately fail to comply with their tax
obligation. Tax evasion in India is a serious affair and for any defaulters or fraudsters,
the Income-Tax Act provides for adequate repercussions. The subsequent tax revenue
loss may make genuine harm in the best possible working of people in public sector,
compromising its ability to back its fundamental costs. Recently, the issue of black
money and defilement has showed up into the front line following a grouping of
scandalous exercises with respect to black money. Ages of black money and it is
reserving abroad in tax havens has prevailed discussions what’s more, banter in broad
daylight fora as of late. Everyone is on edge over the issue particularly after the
distribution of couple of master reports identifying with immense appraisals of
unaccounted property abroad.
India is a country where not a majority of its population is a tax paying member of the
country. They endeavour to stay away from this by some illicit methods or by taking
the advantage of a few escape clauses in the Indian Tax Law. Tax evasion is the term
for the endeavours by people, corporate, trusts and different elements to sidestep
assesses by illicit methods. It is the purposeful, deception or disguise of the genuine
condition of their affairs to the assessment authorities to decrease their tax obligation
or to maintain a strategic distance from the assessment risk by proclaiming less
salaries, benefits or gains than really what they earned or exaggerating their costs.
Black money and tax avoidance cultivate centralisation of financial power in the
hands of unwanted gatherings in the nation. With the freedom of confinement and
unwinding of foreign trade control, crisp open doors have risen for tax avoidance;
globalization has diminished the expense of these complex strategies and
subsequently, has encouraged age of black money. It is conceivable that the black
money multiplied by the Indian is being directed back to India (Ministry of Finance,
May 2012, Para 2.8.5).
As tax is the real wellspring of pay for any legislature, an endeavour for
reconstruction might be seen by different partners genuinely and questions might be
asked because of dread of loss of income. Since the start of civilization, the tex
appears to have been forced by the state in one shape or the other. In the period of
bondage, slaves were treated as an abundance of landowners (feudalists) so they have
forced an expense dependent on various slaves they kept and on the land they had.
After the finish of bondage, the idea of capital rose and assessment began to be forced
on capital, resources or salary. With the improvement and adjustment of state
structure and creation process, the idea of expense changed and assess framework
likewise altered. In the words of Dalton “Tax is a compulsory contribution imposed
by a public authority irrespective of the exact amount of service rendered to the
taxpayer in return and not imposed as a penalty for any legal offence”.
Defining ‘Black Money’:
There is no universal meaning to the term Black Money but similar terms have been
coined time to time in history such as ‘unaccounted income’, ‘dirty money’,
‘underground economy’, etc., but the National Institute of Public Finance and Policy
has defined the term black money as; “it is the aggregate of incomes which are taxable
but not reported to authorities”
Literature Review:
Black Money and tax avoidance have actuated numerous examinations. A short audit
of the writing is exhibited here.
Vijay Kumar Singh (2009) in his study on “Controlling money laundering in IndiaProblems & Perspectives” demonstrated that controlling black money in India is an
entangled assignment just because of poor execution of laws upgrading the advanced
wrongdoing in the economy and in this way making dark cash.
Sukanta Sarkar (2010) directed a study on “The Parallel Economy in India: Causes,
Impacts and Government Initiatives”. He opines that the fundamental purpose for the
age of black money and tax avoidance in India is the political framework. The
Government here has more centered around making committees as opposed to
actualizing it. He presumed that laws ought to be viable to control black money and
tax avoidance in the nation.
CA Lalit Mohan Agarwal (2012) altered the “White Paper on Black Money” and saw
that infringement of laws made by the Central and State Governments conceive
criminal exercises which, thus, lead to an age of black money in Indian economy.
Mr. Nishant Ravindra Ghuge and Dr. Vivek Vasantrao Katfare (2016) in his
investigation “A Comparative Study of the Tax structure of India concerning different
nations” saw that the expense structure of India falls behind generally every pointer.
Definite surveys and activities from the legislature can help streamline the assessment
Tax Research Team (2016) in their working paper contended supporting
demonetization and broke down the effect of it on Indian economy. This paper
demonstrates the impact of such out of here the accessibility of credit, spending, and
dimension of movement and government accounts.
Dr. Devarajappa S. (2017) in his research study on “Tax Reforms in India: A Study of
its Impact on the Revenue of the Government” recommended the need of awareness
of the Indian about the tax collection principles and laws that will make such an
environment in which they will settle their due regulatory obligations and won’t dodge
it and in this manner feeling pleased in releasing their obligation to pay the
Black Money Generation- why and how?
Black Money is either generated in the form of income through an illegal activity
which cannot be presented to the assessing authorities or either in the form of
undisclosed income from performing a legal activity.
Illegal Activities
It incorporates the criminal segment of black money including a large group of
exercises of hostile in nature as pirating of products; phony, theft, fake money and
other monetary cheats (for example Chit funds); creation/exchange of booty products
(for example narcotics, illegal alcohol and guns); illicit mining and falling of
backwoods; storing and black marketing of cost controlled materials and
administrations; burglary, theft, kidnapping and coercion, human trafficking, sexual
abuse and extorting; bribe to public workplaces to anchor supports, for example,
modifying land use, regularizing approved developments; speed cash to evade/quick
track methods, and commission to anchor government purchase orders. These illicit
exercises mirror the declining social and good qualities and are culpable under the
different Acts of the Central and State Governments and furthermore the timetable of
Prevention of Money Laundering Act, 2002.
Legal Activities
Lawfully passable monetary exercises likewise make a generous bit which is past
revelation to public authorities according to provisions of the law to avoid taxes. An
excessive amount of procedural directions once in a while make a motivating force to
disguise the genuine position and in this way staying outside the revealed and
accounted extent of one’s exercises.
Expanded globalization and financial liberalization affect cross-border exchanges
bringing about developing open doors for modern gadgets to keep away from tax
payment following the distinctive assessment guidelines of various nations and
utilization of duty asylums. Worldwide exchange among global organizations has
expanded abuse of exchange evaluating prompting estimations which developing
nations like India may lose noteworthy assets attributable to transfer pricing violation.
Evil Motive
From the past days where the deal framework won till the wonderful period of
innovation today, from little brokers and shippers to the CEO’s of immense business
realms, there has dependably been an extremely compelling impulse to procure
benefits. All things considered, this circumstance can be followed back to World War
II. The World War II period was one of the primary driver of dark cash age in light of
the fact that amid this period the British Government cut out provisions of mechanical
products from outside nations. So there was an overwhelming lack of merchandise in
critical product offerings. This thusly strongly raised the costs of products.
Additionally, assess rates were raised on high salary and overabundance benefits
allowing a chance to high total assets (pay) people to dodge charges. This likewise
empowered specialists to move merchandise which were supply inadequate operating
at a profit showcase for over the top benefits. So this turned into a training later on
years and has shaken the economy till today and will proceed except if the
Government turns out with a forceful activity intend to check dark cash.
Accounting Manipulations/Malpractices
 Out of book transactions
 Manipulation of Sales/Receipts
 Manipulation of Expenses
 Manipulation of Capital
 Manipulation of Closing Stock
 Manipulation of Capital Expenses
 International Transactions through Associate Enterprises
 Other manipulations like falsely inflating miscellaneous expenses like
entertainment, travelling, etc., to reduce tax.
 Under – invoicing of receipts by raising a bill for a lower amount and
receiving the balance amount through other means enabling a part of it to fall
outside the tax net.
Vulnerable sections of society
 Real Estate
 Jewellery and Bullion
 Public Procurement
 Financial Markets
 Non-Profit Organizations
 Unrecognized Sector
Creation of Tax Havens
“The law of transfer pricing characterizes ‘Worldwide Transactions’ as any exchange
between at least two related ventures arranged in various nations as far as a property
that is substantial or elusive, an administration offered by the organization, or any
type of loaning cash, and so on.” So global organizations having related undertakings
spread crosswise over differed topographies could their occupy income (benefits) to
the said related endeavors arranged in no or low duty purviews to sidestep charge
along these lines adding to the dark abundance of our economy. Likewise this
dissolves the pay assess base of our nation. The Government are taking continued
endeavours to reinforce administration by widening the exchange estimating code to
stay away from increasingly more cash getting stored in outside duty safe houses
(nations which have no or low expense) and to guarantee that cross–border exchanges
don’t escape evaluation.
The Indian exchange estimating arrangements require that either or both of the related
endeavours ought to be a non – inhabitant. Be that as it may, the Finance Bill, 2012
has expanded the extent of exchange estimating directions to incorporate exchanges
with local substances likewise (pertinent from A.Y.2013-2014).
Along these lines, black money produced thusly makes colossal income misfortune to
the administration and with rising MNC’s in India and shifted cross–border dealings,
the legislature must turn out with extremely stringent laws by going into more
assessment bargains with various nations (expense shelters like Bermudas, Bahamas,
Switzerland, and so on) to keep away from any mispricing of exchanges.
Tax Havens- Where the black money is kept
Dissimilar to what is appeared in Bollywood films, black money isn’t kept in cabinets
or bags – despite the fact that a few on the off chance that it likely could be kept there.
Black Money is normally kept available for use by utilizing it to back casual exchange
and trade – generally at a higher financing cost than what banks charge.
For example, we gauge that just 30 percent of retail exchange financing is finished by
banking foundations. The rest of the cash originates from moneylenders – a great
segment of it from black money. As a matter of fact, residential black money is a
shrouded hold and it might likewise be valuable somehow or another as it accounts
financial exercises. Likewise, black money flows quicker than white money, which
backs off as it goes through the managing an account and tax assessment circle.
In any case, black money mutilates asset allotment since individuals with enormous
measures of it will utilize it to fabricate spas at home or purchase Italian marble for
the verandah or gold-plated restroom fittings. The economy subsequently attempts to
take into account this beneficial interest rather than what the main part of the general
population require.
In addition, black money is additionally put away in land, which is one motivation
behind why we are finding everything excessively expensive in the property
In the event that black money is valuable here, how could it arrive up in Tax Havens
There are a few explanations behind keeping riches abroad stealthily. They can be
comprehensively ordered as vegan and non-veggie lover reasons/purposes. The
unlawful riches itself can be delegated veg or non-veg. The veg explanations behind
keeping riches abroad incorporate tax avoidance, and keeping a few dollars abroad to
meet costs when you travel abroad or for your kid’s training or little girl’s vacation.
The non-veg cash is collected for fear financing or weapon running or medication
cash or tissue exchange.
The previous is illicit however less hurtful contrasted with the last mentioned. The
administration needs to approach the issue in various courses in handling these two
fragments of black money.
The term ‘Tax Havens’ normally indicates to depict any nation or territory which
requires low duties or none at all on outsiders. The most widely recognized gadget is
to utilize tax haven just as a conductor for exchanges, the genuine financial effect of
which finds somewhere else. Universally two high expense rate nations can be
diverted through an assessment asylum organization so that any subsequent benefit in
the haven prompts minimization of tax.
A decent number of studies on Tax Havens demonstrate that tax havens are
commonly little nations or purviews with low or nil tax collection for outsiders who
choose to come and settle there. They typically keep up solid classification or mystery
about their riches and records making extremely alluring areas for keeping
unaccounted riches safe and, in this way, make them profoundly attractive for
worldwide elements willing to decrease their worldwide taxation rates. The global
substances comprising of a few corporate and non-corporate bodies set up
associations in duty sanctuaries and misleadingly exchange their salary to such
conductor associations planning low expense routine.
Impact on Indian Economy
1. Less tax for Government
2. Uncontrollable inflation
3. Leads to mass poverty
4. Lack of technology
5. Inflated real estate
6. Transfer of Indian funds abroad to tax haven
Current status of Black Money in India
India, almost certainly is a standout amongst the most undermined economies on the
planet. A few actualities about India according to some ongoing measurements seem
to be:
a. India positions eighth among 150 different nations which have the most elevated
measure of dark riches collected in them.
b. India is one of biggest contributors of illegal cash in offshore tax havens and
developed nation manages an account with an all out store of $500 billion.
c. According to the ongoing details given by Swiss Bank the quantum of bank stores
held by Indians in their names and in their benami names in Swiss bank was around
12,740 crore toward the finish of 2011 which is around multiple times bigger than our
nation’s remote obligation.
d. Additionally, according to the Global Financial Integrity (GFI) report, “the present
estimation of unlawful resources held abroad record for around 72% of India’s
underground economy ($462 billion) and which has assessed to be around half of
India’s GDP (Total esteem – $640 billion.)”
The status of black money in India is very disturbing as it beat the rundown in
practically all the black money reports issued by banks. On the off chance that this
much cash is saved in only one assessment sanctuary, envision what amount would be
stored in whatever remains of the world!
High tax rates, defilement public sector units, different tax rates and wasteful
assessment experts are the primary driver of tax avoidance. It recommended that
decrease in tax rates, improvements of expense laws, evacuate escape clauses in the
assessment framework and some degree legitimate preparing of data accessible the
under the yearly data return can be best device for enhancing Indian duty consistence.
Along these lines there is a requirement for making straightforward, friendlier and
less unfair regulatory framework. Further there is additionally a need to teach the
general population about Indian Tax law and make such a situation in which they pay
their due assessments, don’t dodge the expense and feel pleased in releasing their
obligation to pay.
1. Bullen v Wisconsin 1816, 240. US. 625 at p. 630
2. McDowell Co. Ltd. v. Commercial Tax Officer (1985) 3 SCC 230
3. Azadi Bachao Andolan v. UOI, 2003, 263 ITR 706 (SC)
4. Vodafone International holdings B.V. v. Union of India & Anr., 2012, 247
5. CIT v. Vallabh leasing & Finance Co. (P) Ltd. 2004,187 CTR 20
6. CIT v. Bihariji Construction (India) Ltd. 2007, 289 ITR 303 (Gauhati)
7. CIT v. Punjab Electricity Board, 2010, 320, ITR 469 (P&H)
8. IRC v. Duke of Westminster, 1936, AC 1 (HL)
9. W.T. Ramsay Ltd. v. IRC (1981) 1 ALL E.R. 865 (HL)
10. Press Informatiion Bureau, Government of India, Ministry of Finance, 12
January 2018
11. Kalpana V. Tax Evasion – A Major Threat to Economic Development and
Growth – Causes and Remedies,
12. (IJSER), 2015; 5(1):45-56.
13. Nishant Ravindra Ghuge, Dr. Vivek Vasantrao Katdare.
14. A Comparative Study of Tax Structure of India with respect to other countries,
International Conference on Global Trends in Engineering, Technology and
Management (ICGTETM-2016), 2016.
15. Dr. Devarajappa S. Tax evasion in India: A study of its impact on the revenue
of the Government; EPRA International Journal of Economic and Business
Review, 2017; 5(9).
16. Jaiswal Komal. Progressive Evaluation of Direct Tax Revenue in India;
International Journal of Emerging Research in Management & Technology
ISSN: 2278- 9359, 2017; 6(11).
17. Income tax department PAN Allotment Statistics up to financial year 2016-17
& as on 31.12.2017 released by the Income tax Department available on their
18. Source: National Institute of Public Finance and Policy (NIPFP) Estimate
report & A study on widening of tax base and tackling black money submitted
by Federation of Indian Chambers of Commerce and Industry (FICCI)
February 2015.
19. Source: Union Finance Accounts of respective years and reports of C & AG.

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