How To Make Black Money Work For Govt

How bad is this idea? The only way to tell is to ask the people with Black Money if they would put their money behind this concept.

The basic idea behind this is to bring that money into main stream economy without punitive action against the investor for hoarding/not paying taxes on it. Here is how it works.

Allow Mutual Funds companies to launch such funds that would channelize black money into the economy. Any one can put money in these specially designated funds without having to declare the source for those funds. The underlying theory is that by bringing this money to the mainstream we can ensure we put this capital to best use i.e. create wealth.

There are various alternatives to tax investment flow in and out of these funds depending on following question. In what time the govt thinks money can change its color to white. Also, if the money spends enough time in the system, can we forego so of the tax liability associated with it.

Here is how a typical fund terms would look like.

- Entry Load of 10% on all capital inflows. (proceeds to flow to the govt)
- Exit load of 25% if you exit in the first year of investment. Proceeds to flow to the govt.
- Exit load 20% between year 1 and year 5.
- Exit load 10% between year 5 and year 10.
- Exit load 5% between year 10 and 20. (if at all)
- No exit load beyond 20 years.

Govt makes immediate 10% when black money enters the market and taxes money going out purely based on how long it stays within system. Unlike other small savings schemes, govt does not have to ensure a fixed return. Based on any given fund's performance people can choose between various options.