The term “black money” refers to money made illegally, or any income on which taxes are not paid. The opposite of black money is white money – the funds on which taxes have been paid. Taxes not paid means the government doesn’t get its share of income – tax revenue generally being the major income source for a government. The phrase “black money” is commonly used in India. Activities involving black money are generally illegal in nature – such as terrorism, arms trade, drug trafficking, corruption, prostitution, stolen or pirated items trading, etc. People don’t report their illegal revenues fearing the obvious prosecution they’ll face.

But black money not just revolves around illegal activity. Even regular and perfectly legal vocations can contribute to black money creation. For instance, when a sales transaction is not recorded in the books of accounts, the money realized is black money. Such a transaction doesn’t involve a sales receipt and the trader doesn’t pay the otherwise applicable sales tax. Thanks to black money’s illegitimacy, any transfer or movement of black money is called money laundering, and not money transfer.  

Effect on the Economy

Any government primarily relies on tax money to provide basic services and amenities to its citizens and businesses on its shore. When the money that’s due doesn’t come through, the government’s efficiency and the country’s economic health takes a beating. Unaccounted money also makes it difficult to assess a country’s true economic state or progress. Due to this deficit, countries often end up borrowing money, which leads to inflation or high prices. Ultimately, the common citizen ends up paying for the government’s financial shortcomings.

Hoarding Black Money

People have always liked to save as much money as possible and evading taxes is one way of doing so. Since black money cannot be deposited in banks, people owning the money often end up hoarding the funds in their suitcases, private lockers, tax havens, etc.

The matter of stashing away black money concerns politicians, business magnates, bureaucrats, etc. the most as they’re involved in major financial scams, and often their personal property or house isn’t physically spacious enough to accommodate the banknotes amounting to several millions and billions.