What are the effects of money laundering on the economy, budget and tax justice?

Scope of revenue in Turkish Accounting Standard (TMS 18); It is defined as interest, royalties and dividends obtained from the sales of goods, service provision and use of business assets by others. The state collects tax on the recognized revenue. For this purpose, the state has developed an accounting system and set standards. In this way, the income to be taxed is tracked and the state obtains tax revenue. The state's revenue from taxes has the most important share in public revenues. If this income is low, it will reveal the possibility that public revenues will not be able to cover public expenses, and if this possibility occurs, budget deficits will arise (Ergül, 2001: 61).

The income generated by black money is earnings that countries cannot tax. As the ratio of these earnings to national income begins to increase, countries' tax revenues will decrease. Decreasing tax revenues will reduce public revenues, and deficits may occur in the economy as a result of public revenues not being able to cover public expenditures and expenses (Boybaşı, 2005: 16). In other words, the primary impact of black money is on budget revenues, and the decrease in tax revenues in the budget will cause a budget deficit and therefore black money will also affect the general economy.

In countries where tax revenues are negatively affected by black money, fair distribution of taxes is not possible. The volume of the informal economy is gradually increasing in countries that want to collect more taxes as tax revenue decreases. The state, whose tax revenues are decreasing, has two options; The first of these is debt. The state, which attracts the productive investments of the private sector as a result of borrowing, reduces the productive investments of the private sector due to the crowding-out effect. In addition, as the value of bonds increases as a result of borrowing, interest rates increase in the market, and as a result of this mechanism, the country faces many problems with the increase in the inflation rate. The results of the emission policy, which is another way to close the gaps, will not be different from those described (Kıldiş, 2000: 195). Both options have negative effects on the economy.

Tax Evasion: Since black money is usually obtained illegally, it often leads to tax evasion when taxes should be paid on these incomes. Tax evasion can cause significant resource losses to governments' budgets.

We can classify the negative effects of money laundering on tax revenues, tax system, tax justice, general economy and society as follows:

Decrease in Tax Revenues: Black money is not included in official records because it is obtained secretly. This can make it difficult for governments to collect taxes accurately and lead to a decrease in tax revenues.

Distortion of Fair Tax System: Black money can often contribute to economic inequalities. Because these incomes, which are generally obtained by the rich or criminal organizations, may make it difficult to establish a fair tax system and may lead to tax evasion in cases where taxes should be collected from higher income groups.

Economic Instability: Black money creates unregistered and uncontrolled economic activity. This situation may make it difficult for the economy to function properly and may upset the balance of the tax system.

Impact on Public Services: The decrease in tax revenue may negatively affect the capacity to invest in public services and infrastructure projects. It may become difficult to provide sufficient resources for basic public services such as education, health and security.

Political and Social Problems: Losses in tax revenues can increase governments' budget deficits, which can cause political and social instability. Governments may have to find other resources or reduce spending to cover budget deficits, which may affect the general well-being of society.

Efforts to combat money laundering and prevent tax evasion are important to strengthen tax systems and ensure economic justice. International cooperation and regulatory measures can be effective in combating such problems.

So far, the negative effects of money laundering have been mentioned, but if we look at the countries where black money is legalized, transferred to the accounting system and introduced into the financial system, we see that it also has an increasing effect on tax revenue. If we ignore all other negative effects; Black money is included in the accounting system with legal regulations and thus becomes legal. In today's world where economic competition is intense, states generally make declaration-based legal regulations to include black money in their financial systems. Of course, there is no question of state laundering of money, which is clearly the proceeds of crime. In this way, countries can collect revenues from unregistered economic activities included in their systems. As a matter of fact, in Turkey, legal regulations have been made in this direction, known to the public as "peace of existence". However, it is important to use methods such as asset reconciliation exceptionally to avoid being exposed to the other negative effects of black money.

References

Boybaşı, B. (2005), Ankara, Methods of Combating Black Money in the European Union Process and the Example of Turkey, Gazi University Institute of Social Sciences Unpublished Master's Thesis.

Ergül, E. (2001), Black Money Industry and Laundering Crime, Ankara: Adalet Publishing House.

Görgün, M. (2011), The Role of Banks in the Fight against Black Money and the Management of Black Money Risk by Banks, Marmara University Social Sciences Institute Unpublished Master's Thesis, Istanbul.

Kıldiş Y. (2000), National-International Dimension of the Informal Economy and Solution Suggestions, Dokuz Eylül University Social Sciences Institute Journal, Volume 2, Issue 2.