Cash holding leads to Black Money. Make a Plan to weed out black money without causing
much loss to government revenue
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Answers
Answer:
Black money can be totally eliminated if a new tax system called TOP Tax system is adopted and implemented by all nations. Excerpt: -We all know that black money is being generated by tax evasion through unreported/shadow/hidden accounts and also by corruption and fake currency. Tax evasion is being caused by the indirect result of high tax component on commodities and services, multiple taxes, complex tax structures, cumbersome accounting and auditing. In the present economic system, there is huge money in physical form (bills/notes). For example in India, there is an estimated physical currency of 10,72,020 crores with the public out of total money supply of 77,25,560 crores excluding fake currency in the economic system (As at 2012 -June 29). This physical currency is about 13.8% of the total money supply in the economic system. The percentage of physical money may vary from country to country. There are reported to be plenty of cases of lootings, robberies, homicides, extortions, ransoms, and bribes across the world in almost all nations because of this huge money in physical form. This physical money, in huge amounts, is being transferred from one hand to other eluding all tax nets in transactions of commodities or goods. The unaccounted GDP is said to be too heavy and varies from country to country depending upon the corruption level that exists in that country. In addition to this black money there are also huge amounts of fake currency that has contaminated the genuine currency. The combined effect of the black money and fake currency is playing havoc with economies of many countries. Now money is being treated as an income generating asset and wealth instead of using it as a medium in exchange of commodities, goods, services, and shares, physical and intellectual works. The huge accumulation of money in few pockets in the form of black money is making the cyclic circulation of money in the economic system to be erratic (some times more cycles per year and some times less cycles per year) with stagnation/non usage of money causing economic recession at times. In the suggested TOP Tax system 99.7% of the money supply available in the economic system will be in dematerialised (non-physical) form in the accounts of citizens, Governments and companies. Only small portion of money, equalling just 0.3% of the total money supply in the economic system, will be in physical form i.e. currency notes or coins. Under TOP Tax system the value of the limited paper currency should be equal to the value of the [GDP of that country – (exports – imports)] divided by 365. (If GDP = private consumption + gross investment +government spending + Exports – imports). This limited paper currency equalling to 0.3% of the total money supply in the economic system would be more than sufficient if we assume that the average each day consumption of total GDP can be bought by physical currency alone. (100/365 = 0.273). In real terms the low valued commodities or services like, vegetables, fruits, milk, edibles, papers etc., which ought to be bought by physical currency, constitute about 30% of total value of the GDP. In the TOP Tax system all higher valued commodities or services will have to be bought through debit cards, cheques, demand drafts or online cash transfers because of both limited paper currency and restricted monthly cash withdrawals from their accounts. That means even this 0.3% physical currency