Underreported income, or ‘black money‘ as it is commonly known in India, defined arithmetically as the difference between the true income from both legal and illegal activities and the income reported to tax authorities on the tax returns, represents a sizable chunk of the Indian economy. By the official estimates of the Indian government, at least 25% of India’s Gross National Product (or GNP and Gross Domestic Product, GDP) is comprised of ‘black money.’
India faces the challenge of accounting for this unaccounted for cash economy, where most of it is typically from legitimate and legal business activities (in contrast to activities such as drug-running and prostitution which are more associated with Bilderberg and Dominique Strauss Kahn than they are with Mumbai) but upon which taxes are evaded, a crime, for the purposes of business income, intergenerational family savings (hoarding outside and in evasion of the tax and banking system) and tax accounting.
A solution not considered hitherto by the Indian government in the latest report of India’s Ministry of Finance, Department of Revenue, Central Board of Direct Taxes, New Delhi and endorsed by India’s President Mr Pranab Mukherjee who had also served in the Indian government as Finance Minister and Minister of External Affairs can be a win-win-win for those hoarding cash and underreporting incomes, those who are in need of that money toward investment and employment creation, and for the Government of India.
Investing in sustainable development – an emerging consistency of a figure of speech rather than an oxymoron of the global economy since the Industrial Revolution, for development which is not sustainable is no longer development – is a high priority of the Government of India since the summit of Brazil, Russia, India, China and South Africa (BRICS) earlier this year in New Delhi, India.
In a world where $32 trillion (or about one-half the size of global GDP), in cash, may be in hiding, incentives matter more than punishments.
At Transformations, LLC we advise the Government of India to forgive past tax obligations of those with underreported incomes from legal and legitimate business activities if they invest in India’s sustainability initiatives, in both the for-profit and non-profit sectors.