Question

One of the issues discussed is the problem of the underground economy. Do you think this is a big issue? What are your thoughts on this issue? Do you think it is a big problem that the article suggests? How do we stop people from doing this? Should we stop? Discuss your thoughts.

Answer 1

Underground Economy or the black economy comprises of unaccounted cash, unnamed properties, precious and luxurious goods, accumulated from tax evasion, corruption, illegal bussinesses, drug cartels, money laundering, round tripping etc.

So Yes, this is a very big issue because such activities leads to creation of a parallel economy, which affects the growth of the nation. some of the ways in which it affects the economy are as:-

1. Government looses tax revenues as the tax on this black money is not paid.
2. It Increases Inflation in the market, as black money holders disrupt the supply demand equilibrium.
3. Ineffective Monitory Policies.
4. Overpriced real estate prices.
5. Less incentive in Research and Development sector.
6. Capital flight to tax heaven nations.

To minimize the effect of this parallel economy or to stop people from doing this, following steps can be taken:-

1. Introduction of Tax Deduction at Source (TDS).
2. Creating a robust multidimensional money laundering act.
3. Introduction of General Anti Avoidance Rules(GAAR's).
4. Improving Currency Printing Methodology to avoid duplication.
5. Name and Shame policy for convicted personalities.
6. Moral awakening through advertisements.
7. Creation of financial intelligence unit.
8. Constitution of special investigation team (SIT).