- Politicians
In Indian elections, till about a decade ago booth capturing was the biggest problem. With time and efforts of election commission booth capturing was almost eliminated but electoral funding still remains a looming threat to our democratic system. Fighting elections is a costly affair and the expenditure limits set up by election commission are unrealistic and barring a few almost all parties take anonymous donations from affluent business class and which is mostly tax evaded money. Obviously, donations from businessmen are paid back in terms of skewed policies and biased decisions in their favor. Demonetisation along with the budgetary announcements by FM is a crucial step to reduce the amount of anonymous donations to parties from twenty thousand to two thousand rupees to curtail black money into politics.
Dravidian political parties are known to win elections on money power; one of them hardly conducts public meetings and only distributes money as evident in R K Nagar by poll caused by Jayalalithaa’s death. Parties in Maharashtra are famous for giving tickets to real estate businessmen and mint their money. Similarly, UP is also known for regional parties using black money to fund elections by selling tickets. Measures like demonetization are set to deliver a big jolt to many of them as was evident in UP elections where some parties had less money to spend. Use of tax evaded money for donation to political parties to get undue favors in return is set to reduce in the times to come.
Demonetization will cause a cash crunch for political parties as most of them depended on black money. This would in turn open the debate for much needed electoral reforms that’s been pending for long and ultimately may be a step towards the cleansing of the system.
If the politics don’t require black money from corrupt people they may legislate and govern better and not hesitate from taking stern actions against corrupt businessmen, which would formalise the economy to a greater extent leaving the exchequer richer.
2. Hawala Dealers
The shadow economy created due to hawala dealings overburdens the honest, hardworking taxpayers who constitute mere one percent of the total population. Hawala trading is one of the major sources of black money. In hawala, the money is transferred from source to destination without actually moving it. It is a parallel illegal network where the money is given to an agent at the source and is collected from a network agent at the destination in exchange of a commission and government loses tax on such illegal transfers.
In most of the cases this is black money and thus to evade tax authorities this parallel route is used to transfer money. Audits reports and IT raids have proved that a large part of Indian economy is black and that the dishonest politicians, industrialists, bureaucrats have stashed huge amounts of illegal wealth in foreign banks in tax heaven countries.
Hawala trade has also received a punch as a result of demonetization. With demonetization rendering old currency notes invalid, the entire network is broken. Hawala traders are no longer accepting cash and transferring it to a destination because the currency is not a legal tender. Such money if deposited into banks would attract heavy penalties leaving that also as not a very good option.
3.Real Estate Mafia
In towns, cities and metros, real estate is a big source of black money. In India, a large percentage of land deals are underreported. Whenever you go to a builder to see a flat, you always have to pay from 20 up to 40 percent of the cost in cash. No builder takes 100% cash and they are able to hide a significant part of their income from tax authorities. With demonetization, they will not be able to provide the sources of their illegally acquired money or face heavy penalties.
Also, with the increased use of technology in land records keeping it would make land deals more transparent. Also cases like Adarsh society scam will not happen with all government lands recorded in the system making it difficult for land hoarders to illegally make constructions on them. All these steps would break the builder politician nexus as well resulting in cheaper homes for home buyers. This will bring down the amount of black money in elections as well making it more possible for honest citizens to fight elections.
Benami properties transactions and illicit land dealings have created a stockpile of black money. Real estate goons project lands as agricultural lands and then transfer them as residential and make hefty profits. This whole game of power and political connections has virtually made it impossible for common man to afford house at otherwise affordable rates. But promises of action against benami properties has shocked real estate mafia and caught them unguarded. A considerable decline in real estate pieces proves the effectiveness of the policies enacted by Modi government.
4. Fake Currency Dealers
Another important motive achieved through demonetization is a curb on black money. Pakistan imports more ink and paper than it needs for currency printing for itself. ISI runs fake currency printing presses in Pakistan which is smuggled into India through Bangladesh and Nepal routes.
NIA studies show that fake currency notes worth rupees 400 crore are in circulation in India and a large portion of them are in the form of demonetized currency notes. The fake currency will have to be extinguished or brought into the banking system making their detection possible. In addition to that, the new 500 and 2000 rupee notes have world class security features making their duplication difficult for Pakistan so it’s a way to stay a step ahead of the copiers.
Demonetization move by the prime minister widened the tax net forcing people to make pan cards and adhaar cards and pay taxes. Fake currency is no longer available as a safe option like before and people want to avoid dealing with it. This would have a ripple effect and would reduce corruption and illegal activities in general. People fear Modi may be taking more steps in future to curb black money and hence may not prefer it.
5. Terrorist Organizations
The old notes were copied by Pakistan and used to finance terror in India. The new notes have advanced security features that may not be easy to copy for them for a long time. This is set to give a big blow to terror outfits that use this fake money to fund terrorists and export them to India. Terrorists’ organisations like Hizb-ul-Mujahideen collect money in the form of donations in Pakistan and use Hawala routes to route it into India to carry out terror activities.
With demonetization the Hawala route is broken and it’s not possible for Pakistan to route money into India to spread terror. Their existing currency stacks in India face confiscation or may have to be extinguished. Their fake currency printing machines also printed mostly 500 and 1000 rupees notes that have been demonetised and new notes with advanced features may not be easy to duplicate.
Within weeks of demonetization, Kashmir became a more peaceful place extinguishing the cash from terror outfits. In fact, no internal riots and clashes took place in India for the period after demonetization as a result of cash crunch.
6. Sports Betting
Gambling in India is banned except lotteries but India have an illegal racket running nationwide that conducts batting on many things. The net turnover of illegal batting in India is estimated to be around $150bn and bulk of which is in cricket. Other things that have betting in India are movie performances on silver screen, election results, weather predictions etc.
IPL in cricket itself accounts for a large part of batting money in India. Indian bettors often have to transact money with foreigners. E-platforms such as Moneybookers and neteller are popular payment methods for such transactions. Online e-wallets are also used in which money is deposited by payees and it is then used to fund betting activities. Measures like demonetization have made circumventing the rules difficult as the cash depositors may be asked to reveal the sources of the money later.
As part of the income tax disclosure scheme, around 65 thousand crore rupees was declared but it is alleged that a large part of this illegal wealth still remains unearthed and after demonetization the part of this money that’s cash has become piece of paper. However, the effect of demonetization on the money stashed abroad in still unclear. This foreign money is estimated to be more than ten times the countries total debt. Gamblers and betting agents are having a hard time as e-transactions leave money trail for tracking and may invite troubles for them anytime in the future.
7.Educational Institutions
Indian education system is also a huge generator of black money every year. Capitation fees of around 50 thousand crore is paid at various educational levels from KG to PG in India.
This so generated black money often finds its ways to terrorism, election financing and religious conversions. Medical and engineering colleges are the biggest sources of black money with every seat going for lakhs of rupees. These educational institutes use that money to pay bribe to get accreditations from medical council and AICTE. Government has plans to conduct single common entrance exam to fulfil their seats which will reduce corruption. Auditing their financial statements, releasing them on websites, strict monitoring of their funds etc are some other measures set to reduce black money in educational institutes.
Thus, educational institutes can no longer have usual donation practices and there is looming fear in the minds of people related to all sectors that tax authorities are keeping strict vigil at their activities. This will definitely help poor parents to afford quality education for their children.
8. Fake Trusts and Charity
Fake trusts and charity are also a big source of black money in India. They are created sometimes only to turn black money into white. They take black money, evade taxes on them and instead of using that money for charitable purposes route it back to the donors after deducting a commission. While we can’t stop donations to charitable organisations, at least the large donations must not happen in cash.
They should be done by account payee cheques only and PAN number should always be accompanied in case of large donations. Politicians and businessmen use such trusts to launder their ill-gotten tax evaded black money into the system. At least a million charitable trusts and private organisations misuse the rules to employ banking and other channels to launder money. Some fake NGO’s also exist; they conduct fake demonstrations where their ultimate aim is to launder money.
Tax enforcement measures and anti black money campaign by the current Modi government has proved effective in cleaning up the system. The manifesto promises, attitude of the government, and a series of significant systemic policy changes have seen drastic changes in the defiant mindset of black money hoarders. Auditing exercises across the nation, CAG reports and income tax raids have spoiled the party for fake NGOs and charity trusts.
9.Rich Agricultural Land Owners
In India, agricultural income is tax free but this channel is often misused to launder black money costing the exchequer in billions. While it is true that a large number of farmers in India are poor, there exist few very rich land owners that masquerade as poor farmers. They, even if they are rich, enjoy all kinds of power and fertilizer subsidies, minimum support prices set up by the government to protect poor farmers, loan waivers and most of all- tax free income. Rich farmers and such corporations are very influential in the government and bureaucracy and lobby against legislations that would pin them down. The system is hoodwinked by such farmers by buying cheap and uncultivable land. They would declare it to be cultivable land and thus all of their incomes become tax exempted. With the announcement of demonetization such large piles of illegally hoarded cash would become useless and poor farmers would benefit.
Another common practice is to buy subsidised agricultural land and convert it into residential land over a period with the help of people in influential positions or corrupt politician/bureaucrats. In this way, these affluent fake farmers purchase subsidised land at very low cost and sale them at hefty profits as residential land after conversion. This directly impacts poor farmers as they are denied their right to low cost subsidised agricultural land and also it is loss of natural resources as fertile agricultural land is declared residential fictitiously. The profits earned on these agricultural land deals are kept hidden from the system and become a statistics in black money figures. But now, due to strict action on illegal land dealings, ‘benami’ transactions, ill wealth and action on corrupt bureaucrats by the Modi government have plugged the loopholes in the system. The fake farmers are looking for ways to dispose off their ill gotten wealth before the taxman can initiate criminal proceedings against them.
10. Film Industry
Film industry is another field where a lot of black money is involved. In a wikileaks cable in 2011, it got revealed that film industry welcomed it welcomed the funds from politicians and gangsters who are looking to invest their ill-gotten funds. In 2012, in a sting operation by cobrapost also showed film directors admitting that film industry uses black money to convert it into white. The IT act 1961 applies on the revenue sources of the film industry. Parts of it regulate TDS on all payments to directors, actors, studios and distributors as per sections 192, 194C, 194J etc. By investing their tax invaded money into films, people may earn returns on them and which may in turn be used to conduct other illegal activities as well, in addition to tax losses to the country.
In 2012, a news website, Cobrapost’s sting operation caught directors admitting on record that how Indian film industry is working for black money to white conversion. Some of the big names in the industry have registered their companies outside India which is suspicious for Tax authorities.
Warnings, income tax declaration scheme, demonetisation, blocking routes to tax heaven countries, stress on e-transactions, adhaar linking and GST implementation shows the intent and determination of the government to uproot black money and corruption. This incessant drive against illegal money has left corrupts people in the film industry puzzled and vulnerable.
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