Enemy of economy: Black money

Black money is not just a feeble enemy of the economy. This is the context when the term "arch-enemy" would seem appropriate. Black money could be defined as the  money on which one doesn't pay taxes.

The sources of income for the government at large are as following-

1. Tax receipts
2. Capital receipt
3. Non-tax revenue

Normally, taxes are second highest source of revenue generation for the government. Now, in most simplest way, tax evasion will lead to reduction in the earnings of the government. This in turn will increase the gap between the expenditures and revenue of the government, clearly, the former more the latter. This leaves just one choice for the government to finance this deficit- borrow money i.e to sink in a pool of debt. This is one of the causes of inflation, which in turn affects the common man in terms of high prices and the commoners, regular tax payers or not, are to suffer.

Let us assume a very tiny scale scenario to know how black money affects the mass. Let us assume a small region with a population of only 100. Assume that 20 people earn 1000, 20 earn 2000, 20 earn 3000, 20 earn 4000 and the last 20, maybe the government officials or businessmen earn 5000 currency per month, and the government in that region taxes 20% on the income.

Now, if to get his work done easily, a business man earning 5000 per month will bribe a poor employee 1000 rupees, that employee earning 1000 rupees per month suddenly earns 2000 a month. But, this excess 1000 is black money, so he can't pay taxes on it because if he will, there are chances that the Income Tax department will most probably catch that black money. So, the employee will hide those 1000 rupees from the government. Thus, 1000 rupees that were actually circulating in that region now are nowhere to be seen. Thus, the tax earnings on those 1000 rupees will be fictitious as those 1000 are as good as vanished for the government. Therefore, the government earning reduces by 200 rupees (20% of 1000).

Now, this government will increase the tax percent from 20 to 25% so that their earning should increase. Thus, now the people who are innocent and not involved in black money will also have to pay extra taxes because of the people who are involved in the black money dealings.

Difference between the employees earning 1000 per month who bribe and the one who do not is as follows-

Tax is 25%. One who took bribe has 2000 of which he will pay tax only on 1000 because as per official records he earns only 1000 per month and there is no explanation to how he got the extra 1000. Thus, his expense on tax will be 250 (25% of 1000). Hence, he will be having 750+1000 = 1750 to use every month. One who does not bribe used to spend 200 earlier and now has to spend 250 every month and ends up with only 750 currency every month.

Now, imagine the large impact of people having black money of over a thousand million dollars. It is unimaginable how great a consequence would elimination of black money have. Take bills and receipts. Do not bribe. Do not accept bribes. Do things straight and right, you'd never have to take or give bribes.

Thus, one who takes bribe has an adverse impact on those who do not. They reduce the government earnings as they then can evade taxes and thus make the government increase their tax limits from every citizen.

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