Illustrate with example the effects of unaccounted money on social and economic system.
Answers
What Is Black Money?
Black money is money earned through any illegal activity controlled by country regulations. Black money proceeds are usually received in cash from underground economic activity and, as such, are not taxed. Recipients of black money must hide it, spend it only in the underground economy, or attempt to give it the appearance of legitimacy through money laundering.
How Black Money Works:
In its simplest form, black money is money on which tax is not paid to the government. A store that accepts cash for its merchandise and does not issue receipts to its customers will be transacting in black money, as it would not pay tax on the unaccounted sales. Furthermore, a property buyer who purchases land valued at $200,000 from which $50,000 is reported on the books and $150,000 is paid under the table to the seller, will have transacted in black money worth $150,000. The sellers in both examples have earned money from legal sources but evaded taxes.
Examples:
Most black money holders attempt to convert the money into legal money, also known as white money. This is typically done through money laundering, which can be attempted in a number of ways. Consider a consumer who pays the sales tax on retail goods but does not actually purchase the merchandise. If the consumer receives a sales receipt and is reimbursed for the price of the goods, the reimbursement is considered black money. The seller counters this effect by selling the merchandise to another customer, who purchases the item but does not receive a receipt for the purchase.