2019-06-29_Corporate_Professional_Today

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June 29 To July 5, 2019 u Taxmann’s Corporate Professionals Today u Vol. 45 u 43

It also covers income from legal economic
activities where tax is evaded, i.e., unreported
income from self-employment, wages, salaries
and assets from unreported work related to
legal services and goods.

It has been noticed that the sectors where
unaccounted income is found to be highest
include real estate, mining, pharmaceuticals, pan
masala, gutka & tobacco industry, bullion &
commodity markets, film industry, educational
institutes and professionals. The other sectors,
namely, securities market and manufacturing
also show high incidence of unaccounted
income.

Unaccounted Income in India

2.The Committee said that no reliable estimate
of black money generated or accumulated can
be made as there is no accurate, well-accepted

methodology for making such an estimate.

The OECD has prescribed three methods for

making an estimate of unaccounted money

in its 2002 publication. These methods are

monetary methods, Global Indicator Methods

and Latent Variable Methods (MIMIC).

The then Hon’ble Finance Minister, on October

28, 2010, had approved 3 institutes, i.e.,

National Institute of Public Finance and

Policy (NIPFP), National Institute of Financial

Management (NIFM) and National Council

of Applied Economic Research (NCAER) to

conduct a thorough assessment or survey on

unaccounted income/wealth.

Those institutes have provided the final

report on estimation of unaccounted income

by using different methods as follows:

Unaccounted income as % of reported GDP

Insti-

tute

Methods

Monetary Method MIMIC Method Other methods Other methods

NIFM Currency based: 100%

M1 based: 43%

M3 based: 10% (2008-09)

72% (2009-2010) 72% (2009-10) [Land

freight transport meth-

od]

72% (2009-10) [State

Space method]

NIPFP Currency/M3 model:

42%

Real Currency model:

39% (2009-10)

7% (2010-11) 17% (2009-10) [Elec-

tricity model]

10% (2010-11) [Dynamic

MIMIC model]

NCAER Tax related : 65.34 %

Non-tax corruption re-

lated : 19.57 %

71% to 79% (2010-11)

Only index estimated

which shows declining

trend in 90s bottoming

around 1998 and in-

creasing trend thereafter

120% (2010-11) Cross

country Pooled regres-

sion method with energy

consumption as input

[not a very prudent

method]

55% (2010-11) Direct

method using survey

data and national ac-

counts statistics

Unaccounted Income outside India

3. Illegal capital is generated through a
   number of means that are not revealed in
   the National Accounts or Balance of payments
   figures, and include trade mispricing, bulk
   cash movements, hawala transactions and
   smuggling.

Various methods have been prescribed for

estimating illicit flow of income which include

Trade mis-invoicing method, World Bank residual

method and Tax Justice Network’s measure

of illicit flows. The approved institutes have

estimated unaccounted wealth outside India

by using these methods. Their estimates are:

WHAT ‘STANDING COMMITTEE ON FINANCE’ SAID ABOUT BLACK MONEY IN ITS PRELIMINARY REPORT?