Essay on Black Money and its Impact

Free 750 words Essay on Black Money and its impact for school and college students.

The segment of the economy that falls outside the purview of national government’s commercial regulations is called black money and the money generated by usurping taxes is known as the black money or unaccounted wealth. Transparency International reports that 72 out of 100 companies disclose no tax information about tax payments in foreign countries and 81 out of 100 companies do not disclose an explicit policy prohibiting facilitation payments. Rampant corruption at individual as well as organizational level has led to extraordinarily malevolent consequences worldwide. The menace of black money is making dents in the formal economy of the world, as the unaccounted stashes of treasures are finding safe havens under secret jurisdictions. 

Free essay on Black Money and its impact

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With the advancement of globalization and intertwining of the world economy into a complex intangible web, organizational transparency has hit the rock-bottom. The recent Panama Paper leaks facilitated by the International Consortium of Investigative Journalists have exposed unrealistic figures of the gigantic sums of money stashed in tax havens such as Panama, Cayman Islands or British Virgin Islands. This is apparently just the tip of the iceberg. The revelations had sent shockwaves across the world, as some prominent politicians had their confidants standing accused in these intrepid media trials. It cannot be called a simple case of nepotism rather a systematic and sophisticated channel of misappropriation of public funds. These funds end up being the black money in the hands of rich and powerful.

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Tax evasion is defined by the Transparency International as “the illegal non-payment or underpayment of taxes, usually by deliberately making a false declaration or no declaration to tax authorities – such as by declaring less income, profits or gains than the amounts actually earned, or by overstating deductions.” Such irresponsible appropriation of money can be attributed to civil and criminal penalties. Evaders take advantage of loopholes in the legal code or misinterpretation of tax regulations. The common public remains oblivious of the complicated corporate procedures and ownership details, and remains embroiled in their mundane requirements. However, such tax evasion has a trailblazing effect over the economy of that nation. Transfer pricing is another method of tax avoidance done in the name of trade between the parent company and its subsidiaries. Manipulations in the internal transactions lead to obscurantism of facts and deliberate fraud. Governments often act hand-in-glove due to conflict of interest and fail to explore the relationship between tax revenues and corruption, easing the generation of black money. Less tax collection is the reason behind struggling fiscal consolidation and low spending on social security, health, education, and other crucial sectors.


Tax havens are countries or cities acting as secret jurisdictions which levy minimal or no tax rates from the operating companies or entities. In addition, they even help augment the creation and sustenance of shell companies, which perform no commercial business but hold huge assets under their name. As reported by Panama Paper leak, Mossack Fonseka was one financial service provider that assisted the creation of a gazillion number of fake entities sitting over huge piles of wealth. These jurisdictions must be brought under the legal framework of the global economy by ensuring transparency, accountability, and integrity of data. Besides, multi-lateral information sharing and mutual legal assistance schemes are the additionally suggested methodologies.


Another way of utilizing black money by individuals is the round-tripping of funds, notoriously pervasive in India through a financial instrument known as Participatory Notes. This helps conversion of accumulated illegal wealth into their mainstream wealth.


The International Monetary Fund has constantly tried to draw links between money laundering and terror financing raising alarms. Exploitation of financial vulnerabilities can have hazardous consequences. This financial abuse needs a counterbalancing international framework that combats such activities. The scourge of terrorism has transcended all borders. It can now have destabilizing effects on political scenario and debilitating effects on social and economic stability.


The OECD nations have come up with the Base Erosion Profit Shifting (BEPS) framework to check the loopholes in Transfer Pricing that generates huge assets of black money. IMF has endorsed the Financial Action Task Force (FATF) which is responsible for overseeing the channels of terror financing by coming up with a set of recommendations that cover the criminal justice system, transparency or persons or organizations, the financial sector, and the overall system of international cooperation.


The creation of black money has been ubiquitous in the absence of strict regulatory frameworks. International cooperation is a mandatorily pressing issue that has to be taken up on a priority basis through global solidarity.

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