Lawmakers are considering withdrawing the high denomination Rs5, currency notes from circulation in order to curb the flow of black money. In the UAE, letters are being sent out to rich foreigners and residents to give proof of their tax status, precipitating a flurry of worry in Pakistan.

The government is trying to get a law passed against benami transactions carried out under misleading names. In most instances, it is earned through illicit means; however, the definition of black money also encompasses income earned through legal means on which tax is evaded.

It is the income received in cash, not accounted for on the books, and concealed from the government and tax authorities. Most commonly, black money is generated through some form of corruption. Take for example, income received as a bribe for approving a building sanction plan.

This transaction would not take place over a cheque or bank draft. It will not be entered in the books of the receiver and therefore no taxes will be paid on it. Black money is generated on the sale of assets as well. If the actual value of an asset is higher than the one shown on paper and declared in the income tax return, then the excess is taken in cash and becomes black money as tax was not paid on on it. Another way to conceal transactions is to avoid making invoices.

The income received on that transaction is thus untaxed. These transactions could include a sale of any form of goods or services. Businesses also often create fake expenses to bring down their income to reduce the amount of tax that can be applied. Fictitious expenses conceal some portion of the income on which the tax is not paid. When tax evaders generate black money, they do not deposit the money in the bank out of fear of being caught by the agencies.

Here are some of the common ways through which black money is converted into white:. Real estate is one of the major sectors where huge amounts of black money are parked.

People across the world use real estate deals for black money conversions. Ali buys a house under the name of Mrs.

The payment is made by Mr. Ali but on paper the property belongs to his wife.

The IRS detects such transactions through running a check on income details. Ali does not have any declared source of income, it becomes clear that the payment was made by another person, possibly to hide their black money earnings.

In other instances, the transaction may be carried out under a fictitious name. And so broadly speaking benami transactions are used to park untaxed money in the form of real estate, shares, bank accounts, stocks, and other forms of assets.

Hawala or hundi transactions: Suppose a tax evader based in Islamabad has Rs5 million in black money.

Since it is black money, depositing it in bank is out of the question. So, he seeks the help of a hawala agent. The agent takes the cash in Islamabad and transfers it in foreign currency to another agent based elsewhere in the world.

Then that money is rerouted back as a foreign remittance—which luckily enough are not taxed. Agricultural income is exempt under Income Tax Ordinance, And so, people making black money get fictitious receipts to show they have earned income from agriculture. But to show income from agriculture, you must be able to prove you have a piece of land on which you do your farming. Black money is often declared as a gift received from relatives.

But in this case, a relative who has the same amount in white money becomes an accomplice. The accomplice issues a cheque for the amount to show it is as a gift, but they cash back from the black money earner. Any amount of money received from relatives as a gift is exempt from income tax if received through the proper banking channels. The tax authorities strictly investigate such claims to tighten the noose on tax evaders. Often tax evaders open multiple bank accounts in the names of their family members and deposit black money here.

Often black money earners buy winning prize bonds from their actual owners at higher prices to convert their black money into white. Often black money is spent in black without being converted into white. People invest in property, spending on weddings and events, buy goods and services such as interior decoration, pay for education expenses, buy gold instead of accumulating cash, black money is converted into valuable jewelry.

The Inland Revenue Service is on a constant lookout for tax evaders to keep black money offenders in check. Criminal investigations are opened into possible tax crimes through rigorous audits.

The IRS is the only government agency that has the right to investigate possible criminal violations of the tax laws. Other crimes can be investigated by agencies such as the National Accountability Bureau. The government is, for example, making an effort to introduce new laws. The Benami Transactions Prohibition Bill, , was presented before the Senate Standing Committee at the end of November, Benami transactions can still be identified but properties held in benami cases cannot be confiscated.

Understanding Issues Related to Black Money - INSIGHTS

At present, Pakistan is probably one of the very few countries with no law against benami transactions. If the bill is approved, offenders can face jail time and fines and the government would be able to take the property. Another way to crack down on black money is to announce amnesty schemes from time to time. The most recent amnesty scheme concerns property law and the insertion of Section W in the Income Tax Ordinance, It is an attempt to bring the black economy accumulated in the real estate sector into the tax net.

Supporters argue that tackling the black economy should be the main concern at the moment and the new law clearly supports this effort. More work is needed on foreign remittances and hawala transactions.

Explaining the source of foreign remittances could help rein in hawala transactions. Lawbreakers can easily send black money abroad and then receive it back in the form of foreign remittance. With figures at such a peak, these transactions need to be kept under close watch. It would be simpler perhaps to crack down on the winning prize bond trick.

Demonetization could be another possible solution.

This method has been tried and tested by many countries, including Australia, North Korea, and Russia. Recently, the Indian government decided to withdraw high currency denominations of Rs and Rs1, notes from the system in an attempt to control black money from being accumulated.

It will also encourage the use of bank accounts and e-banking but unlike with India, the currency notes will be given a time period of three to five years for withdrawal from the market.

Govt announces new amnesty scheme: 1% tax turns black money into white - Pakistan - Dunya News

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Please enter an answer in digits: Home About Us Online advertisement tariff Contact Us Disclaimer Subscription. Home Latest Issue Editorial News Features Hot Features Audio Audio Archives from Sep Audio Archives from July to Sep TFT Blog Good Times Archives. Taken to the cleaners. Generating black money Most commonly, black money is generated through some form of corruption. Conversion of black money When tax evaders generate black money, they do not deposit the money in the bank out of fear of being caught by the agencies.

Here are some of the common ways through which black money is converted into white: Related Posts Buyers beware June 2, The TFT guide to new real estate taxes II October 21, Leave a Reply Cancel reply Your email address will not be published.

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