It is an obvious trait of black incomes that they cannot be declared to the fiscal authority for fear of ??t large penalties. As under-declarations multiply, the tax base shrinks and price controls begin to blunt the edge of fiscal policy. One instrument of control gets into the way of the other and makes it ineffective. Tax evasion is large not necessarily because the rate of tax is high, as businessmen often proclaim, but because the income on which tax is to be paid, and the activity from which income is received, cannot be declared. It follows that even if taxes were halved, so long as the income is black, taxes will be evaded. However, to the extent taxation fails to catch undeclared incomes come emanating from controls, it becomes a bad instrument for balancing aggregate demand and supply and for controlling inflation. In an enthusiastic attempt to make taxation do the balancing trick, tax rates on honest tax-payers become penal. This leads to a second round of tax evasion, this time because tax rates are intolerably high. More and more tax-payers at the margin avoid tax payment, become dishonest and in the course of time get used to dishonesty. While black money does so much damage to public policy, it also dries up the sources of real growth in the private sector of the economy. The capital market, the main vehicle of growth, consequently dries up, and capital formation both in the public and private sectors suffers a serious decline.

Q.(i) How is the circulation of black money detrimental for private entrepreneurs ?

Q.(ii) Why isn't reduction of taxes useful for sprucing up taxes ?

Q.(iii) How do honest tax-payers suffer on account of tax evaders ?

Q.(iv) How does black income impact a nation's economy?

Q.(v) Large scale evasion of taxes takes place due to exorbitant taxes.' Argue for or against the statement on the basis of your reading of the passage