Management Notes

Reference Notes for Management

Enumerate the recent initiatives by the government to address the issues related to black money and parallel economy.

Enumerate the recent initiatives by the government to address the issues related to black money and parallel economy.

Indian Economic Service 

Indian Statistical Service Examination, 2023

Enumerate the recent initiatives by the government to address the issues related to black money and parallel economy.

Here are some of the key initiatives by the government to address the issues related to black money and parallel economy.

Demonetization (November 2016):

A significant step had been taken by the Indian government under the Prime Minister Narendra Modi in tackling black money by demonetizing the high-denomination currency notes of Rs. 500 and Rs. 1,000 in order to combat black money. By doing so, black money in the form of cash holdings was rendered useless.

This move brought about a shift in people’s spending habits, with more and more people opting for digital payment methods. It also forced a shift in the black money economy to other illegal activities such as tax evasion and money laundering.

Implementation of GST (Goods and Services Tax):

In July 2017, the Goods and Services Tax was introduced in India in order to simplify the indirect taxation system. The Goods and Services Tax has been able to reduce the scope of tax evasion and the generation of black money as a result of complex taxation.

The Goods and Services Tax has also helped to streamline the taxation structure and reduce compliance costs for businesses. Furthermore, it has improved the efficiency of the Indian economy by increasing the number of taxpayers and reducing bureaucratic red tape.

Benami Transactions (Prohibition) Amendment Act, 2016:

This amendment empowered the government to confiscate benami properties (properties held in someone else’s name) and take strict actions against those involved in such transactions.

Offenders are liable for imprisonment of up to three years and/or a fine of up to 25 percent of the fair market value of the property. The amendment also provides for a special court to hear such cases and deliver judgments.

Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015:

Individuals with undisclosed foreign assets and income were targeted by this act. Those who failed to take advantage of this opportunity would face harsher civil and criminal penalties.

By declaring their foreign assets and paying a tax and penalty, they were given one-time compliance opportunities. There was a clear-cut way to avoid future legal troubles.

Pradhan Mantri Garib Kalyan Yojana (PMGKY):

By paying a tax, penalty, and surcharge, people could declare their undisclosed income and assets after demonetization. This scheme allowed people to come clean about their income, and it was a successful scheme, raising over Rs. 65,000 crore in taxes.

Money collected from this scheme was used for welfare programs. It was a voluntary disclosure window and allowed people to come clean about their income.

Operation Clean Money:

To identify and scrutinize individuals and entities who made large deposits or transactions during demonetization, the Income Tax Department launched Operation Clean Money. Individuals were required to provide bank account details and explain the source of their money to bring undisclosed income into the tax net.

The Income Tax Department launched a website to track suspicious deposits and transactions. In order to identify any discrepancies, the department cross-checked the information with its database.

Exchange of Information Agreements:

The Common Reporting Standard (CRS) and Foreign Account Tax Compliance Act (FATCA) are among the international agreements India has signed for the exchange of financial information.

By detecting undisclosed offshore accounts and assets, India strengthens its tax base, increases revenue, and identifies potential money laundering and other illicit activities. In addition, it contributes to a fair global financial system by promoting tax compliance.

Amendments to the Prevention of Money Laundering Act (PMLA):

In order to strengthen the legal framework for combating money laundering, which is often associated with black money, the government amended the PMLA.

Additionally, the amendments will strengthen the existing framework by introducing new measures that will help combat the issue more effectively. They will also help ensure that the country’s financial system is more transparent and accountable.

Income Tax Reforms:

To streamline tax administration, the government has introduced measures such as e-assessment, faceless appeals, and prefilled tax returns, which have simplified tax laws, increased transparency, and reduced tax evasion.

By implementing these measures, taxpayers have been able to comply with taxes more easily, and the government has been able to reduce tax evasion. By providing an effective dispute resolution mechanism, the government has also taken several steps to reduce tax litigation.

Digital Payments and Electronic Transactions:

To track and regulate financial transactions more effectively, the government has encouraged digital transactions and reduced cash consumption in the economy. By providing tax incentives for digital payments and encouraging banks to issue debit cards to the unbanked, this has been accomplished.

The government has been able to collect more revenue from the digital economy due to these measures, which have reduced illegal activities such as money laundering and tax evasion.

These initiatives were aimed at tackling black money and the parallel economy by promoting transparency, improving tax compliance, and deterring tax evasion.

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