Shadow economy/Black economy

Shadow economy/Black economy

India has second highest rate of shadow economy in the world. It is that part of economy involving goods and services which are paid in cash but have not been declared for the payment of tax. Illegal economy indicates underground trading of goods and services. Black market flourishes because of illicit transactions inside a country’s economy. People engaged in black market, often lead their business under the veil of legal trade.

Through illicit business they gain huge turnover of profits hence maximising underground economy. Black marketing is epidemic in India and for those studying operations of market, it becomes necessary to study what is shadow economy. It is estimated that India has almost US $ 1,456 billion unaccounted money stored in Swiss Banks than rest of the world. It is alleged that if all the black money in Swiss Bank is brought back to the nation then India has the capacity to rise as one of the richest countries in the whole world. Persons dealing in the trading of prohibited goods and services fall under the category of this economy. If tax rates are low then shadow economy will also fade away.

To overcome the problem of this economy, it is mandatory to formulate an environment in which economic activities can flow. If tax burden rises then there is a likely chance of evading more. Therefore, entrepreneurs should be given knowledge so as to improve tax morality. It can be a serious threat in the development of business. Shadow economy comprises of profits generating out of legal goods and services that would be taxable had it been declared. Social security contributions and state regulations are major reasons of shadow economy. Higher tax revenues hamper the quality of good public services that further affects the tax rates. There is a direct relationship between unemployment and this

Higher tax revenues hamper the quality of good public services that further affects the tax rates. There is a direct relationship between unemployment and this economy economy. More hidden economy increases the weight of unemployment and vice-versa. Government should nurture enterprise culture to eradicate shadow economy. Customers of shadow economy find themselves without any legal security. However, every tax authority attempts to curb shadow economy.

Related Topic: How to save taxes legally

A coordination between strategy and operations including sharing data must be improved technically. High penalties and punishments should be imposed to detect probabilities of hiding profits. While harsh penalties and punishments deter entrepreneurs to hide their income, it also compels them to run away from it. Shadow economy marks a negative impact on legitimate businesses. Shadow economy can be possibly eradicated if startups are delivered full knowledge regarding tax evasion and their responsibilities towards lifting up the economy of nation. For shadow economy to go down and main economy to grow up. We need to File our taxes properly.

Simple and easy procedure to file income tax return online through ITR Software by Taxraahi.

By | 2018-08-08T07:35:48+00:00 September 5th, 2016|Categories: Income from Business and Profession|0 Comments

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Pulkit Jain is the founder of LegalRaasta – India's top portal for registration, trademark, return filing and loans. Pulkit is a veteran CA with over 10+ of experience.

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