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Important things to know about Black Money Versus White Money

Black Money

It is a very common perception and notion that human needs and wants are unstable. We are never satisfied with what we have the want for more increases rapidly each day. The greed for the accumulation of more money prompts one to resort to illegal ways thereby resulting in the emergence of black money. While on the other hand white money is that source of income generated through legitimate means. In many cases, the black money is also converted to white money to prevent stringent actions by the governments. 

Black money vs white money

Black money 

In its spectrum of definition black money consists of all the income or funds that are collected in an illegal way or legal income which has not been recorded for tax consideration. In simple words, it can be said that black money is that money is hidden from the government to avoid taxation. The problem of black money is a vexed issue for any economy and results in various multi-dimensional problems. 

Moreover one of the main reasons behind the stagnant growth of an economy is the increased circulation and incidences of black money. The advancement in the scientific and technological arena has resulted in increased growth and development of the world economy and this growth of the economy has magnified the issue of black money to much greater limits. Black money is usually received in the form of cash and comes from underground economic activities. 

Sources of black money

The means of procuring black money or black currency are many that include the following:

  • Disguised ownership-One of the major sources of black money comes in the form of disguised ownership. Quite often there are instances where the actual owner of particular land or plot is unknown. It is often the case that there can be more than one owner for a particular land most of which are created through fake identities for the procurement of rent. 
  • Trade Mispricing- Typically in various cases the exported and imported goods are priced either lower or higher as per the market trends to enable money laundering. Moreover fake and fictitious bills are being generated and produced to generate income illegally. 
  • Mixed sales- Mixing the illicit money with the legit ones is one of the popular sources of black money since it goes undetected. 
  •  Money transfer to Benami entities- Another popular source of black money is money transfer to Benami transactions. In a Benami transaction, the property or land is held or transferred by one person but the consideration for the property is paid by another individual. 

White Money 

As compared to black money, white money is that income that is generated through legal means and undergoes tax consideration as per the provision of the government. It is imperative to mention here that in various cases even black money is converted to white money through various means such as through social services, or by using the money for donation proposes, etc. While the existence of black money can negatively impact the economy, white money holds the potential for the growth and development of a nation since it enables the government to generate revenue to make plans for the advancement of the nation. 

Impact of black money on the economy 

Black money is one of the many socio-economic evils that result in the stagnation of an economy resulting in various issues. Moreover, the holders of black money also resort to various ways to change black money to white money and this can hamper the working of the economy. The existence of black money and its increasing growth results in various negative impacts on the economy. The impact of black money on the economy is as follows:

  •  Creation of a dual economy- the increased amount of black money in the market results in the creation of a parallel economy that operates simultaneously with the reported or official economy of a country. Almost one-fifth of the aggregate transactions of the economy belongs to the world of black money. The creation of a parallel economy almost ruins the existing economy thereby affecting the development of a nation. 
  • Decreases the quality of public services and goods- the existence of black market money in the economy increases the instances of corruption among the people. Owing to the increased rate of corruption due to the presence of black money and in the greed of procuring more the distributors and providers of public goods and services are often on the lookout for concealing the facts thereby providing the citizens with low-quality goods and products. 
  •  Higher inflation and taxation- The main reason behind the implementation of taxes is to generate revenues for the expenditures and projects undertaken by the government for public welfare. But to increase one saving people tend to avoid taxation through various means thereby resulting in increased instances and accumulation of black money in the economy. This results in increased taxation along with inflation in the economy. 
  •  Difficulty in the formation of fiscal and monetary policy – The exact nation’s income goes undetected during the survey period due to the presence of black money. This creates several hindrances in the formulation of the fiscal and monetary policy that directly impacts the economy of a nation. 
  • Rise in criminal activities- The illegally earned money or in other words black money results in the rise of various criminal activities. From numerous terrorist activities to the increased cases of drug peddling, cases of extortion, corruption, etc are all the outcomes of the black economy. The rise in the cases of criminal activities seriously hampers an economy resulting in its disruption. 
  •  Loss of revenue to the government- The incidences of black wealth is largely related to tax evasion through various means. This results in a loss of revenue to the government and fails to meet the expenditure to implement policies directed towards the betterment of the nation. 

Conclusion

Thus, there are two types of money in the economy, black and white money. Black money refers to the illegal type of money which is gathered due to different means like tax evasion, etc. Whereas, white money refers to the legal type of money. In terms of exchanging black and white money, it is easier to exchange the latter than the former. However, black money comprises of tremendous negative impact on the economy

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