Amendments In Political Funding – A Wrong not capable of curing deadly Cancer of Corruption

The government has once again succeeded in keeping the masses confused for one more year by completing the annual ritual of budget exercise. The intellectuals are still debating the long term gains of demonetisation which has certainly caused short term irreversible PAIN to already struggling SME sector and our large farmer community.

The swift availability of information has educated the common man more what government would have desired for so any government in power can no longer afford to ignore the loopholes and pitfalls in our fiscal and economic policies glaringly written on the wall.

The budget 2017 certainly addresses most of such pitfalls and passé the test of presenting a GOOD BUDGET with a very good score by maintaining stability in Tax rates, giving marginal relief to honest tax payers, burdening a bit the high income earners who are virtually TAX EVADERS because only 24 lakhs people declare their income more than Rs.10 lakhs per annum, spending more for agriculture and infrastructure, pushing less cash economy, budgeting more safety of our railways and so on.

By that standard, it is the least controversial budget which pleases almost all sections of society apparently because there is nothing harsh even for those (TAX EVADERS) who have been benefiting from impartial, inefficient and unjust tax system in the country. So we can see captains of industry, economists, politicians and well positioned people lauding the Budget-2017 as there is a status quo at least. We all owe a gratitude to the government in power for not adding miseries to our economic life.

However undoubtedly It has miserably failed to address the cancer of corruption and black money generations except making some inconsequential changes in political Funding and cash transaction.

In his own admission of our Honourable Finance Minster – ‘India on the whole is a non tax complaint country’ substantiated by smart data analysis also.

‘The ratio of Indirect tax and Direct tax to GDP is alarmingly disturbing signifying an unjust tax system in the country.’

The biggest irony of today is though there is repeatedly an open acceptance of such fatal ills in our tax system destroying the economic dividend of higher GDP earned but the actions taken are counterproductive. They do nothing much except creating sensational headlines of undertaking revolutionary REFORMS for some time. They end up further complicating the issue which is the real hidden agenda of such wild declarations.

Let me now focus only with steps announced for curbing black money getting into the hands of politicians (our rulers) legitimately by way of political Funding.

EXISTING TAX IMPLICATION FOR POLITICAL PARTIES

Section 13A of the Income-tax Act, 1961 confers tax-exemption to recognized political parties for income from house property, income by way of voluntary contributions, income from capital gains and income from other sources. In other words, only income under the head salaries and income from business or profession are chargeable to tax in the hands of political parties in India.

These political outfits can enjoy the above-said tax-exemption if they maintain proper books of accounts and other documents along with a record of contributions in respect of donations to the party in excess of Rs 20,000. Further, the accounts of such political party are to be audited by a chartered accountant and the party must be registered with the Election Commission of India.

Under section 139(4B) of the Income tax Act, 1961, political parties are however under a statutory obligation to file return of income in respect of each assessment year.

Further, the amendment made in 2003 to the Representation of the People Act, 1951 requires that the treasurer of every political party must file a declaration in respect of donations exceeding Rs. 20,000 at a time.

The party treasurer of a political party must file a report of contributions received to the Election commission before the due date for furnishing the return of income under Section 139 of the Income tax Act. More importantly, section 13A has been amended and tax exemption for a political party is contingent upon the submission of the report by the party treasurer.

The compliance of above legal requirement by the political parties is already pathetically poor which is not more than 50% with no serious penal action affecting their functioning.

Section 80GGB was a new insertion in the Income-tax Act, 1961. This enables Indian companies to get full deduction in their income-tax assessments for contributions made to political parties. Interestingly, there is no ceiling fixed on the amount of such contribution. Section 80GGC gives similar deduction for non-company taxpayers. Advertisements in souvenirs published by political parties would also be eligible for deduction. For this purpose, the term “political party” means a political party registered under section 29A of the Representation of the People Act, 1951.

What justifies allowing unlimited amount of donation to political parties as an expense whereas there are several restriction for giving donations to other charitable trust and Non profit companies under section 80 G of Income Tax.Thus political parties commands undisputed higher meritorious status than the charitable outfits dedicated to some noble cause and enjoy permanent immunity from Income tax as well.

AMENDMENTS PROPOSED IN BUDGET 2017

In order to discourage the cash transactions and to bring transparency in the source of funding to political parties, it is proposed to amend the provisions of section 13A to provide for additional conditions for availing the benefit of the said section which are as under:

(i) No donations of Rs.2000/- or more is received otherwise than by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account or through electoral bonds,

(ii) Political party furnishes a return of income for the previous year in accordance with the provisions of sub-section (4B) of section 139 on or before the due date under section 139.

Further, in order to address the concern of anonymity of the donors, it is proposed to amend the said section to provide that the political parties shall not be required to furnish the name and address of the donors who contribute by way of electoral bond.

• Apparently on a plain reading one might infer that government has taken some measures in the right direction. However, the devil is in detail, thus these are completely eye wash amendments to generate hype that war against black money generation is on.

• What stops any political party to raise more number of cash receipts to accommodate as much cash it wants to receive as donation from millions of anonymous sources? The answer is NO BODY? They can continue to do it legally.

• As per statistics available in public domain, the cash collection from anonymous source ranges from 65% to 100% of the total collection which is several hundred crores for most of the political parties?

• What is the rationale for giving income tax exemption to political parties? Are they formed to serve society in today’s time? The answer is big NO. People by and large enter into politics to make a career out of it. MP, MLA and ministers draw handsome salaries & allowances besides enjoying unlimited perquisites and power.

• There are always a few people in business community who run their commercial enterprise for social service only so by that standard the entire business community must be given income tax exemption.

• Why anonymity of the donor to a political party should be kept? We contradict our basic premise of doing public good by political parties for giving them exemption from Income tax. Thrust on anonymity in itself is an evidence of ulterior motives of donor and donee thus giving birth to crony capitalism. Every donor to any NGO or charitable trust would take a pride if donor is given a recognition for the contribution. Here it is other way round, Donor does want to reveal it’s identity. It is legalised now.

• The bigger devil is in further detail, by this amendments, The election commission would not have access to the donors contributing more than Rs.20,000 than and now Rs.2000 because the requirement of furnishing the annual return by the treasurer of political party with Election commissioner has been done away with.

• It puts party in power at an advantage by being privy to the information of donations done through bearer Electoral Bonds purchased from digital payment or cheque being encashed at only one designated branch of a political Party.

• Thus party in power can black mail both donor and donee ( opposition political parties) which has damaging implications for already distorted format of democracy we are practicing in India.

• In effect, This proposed amendments would deprive Election Commission of critical information about donors which it could use to do any monitoring. We know ‘Information is power.’ Now with this proposed amendment the power of Election Commission gets diluted for want of information It is now between the political parties only to barter/ pardon crimes for mutual benefit.So there is no pleasant surprise that every political party has welcome this so called reduction in amount of cash collection disguised to benefit them by coming out of clutches of Election Commission at least to some extent.
  

• There are already more than 1892 political parties (including 1837 regional unrecognised political parties ) registered with Election commission as at 11^th Jan, 2017 as per gazette by ECI. Majority of them are habitual and wilful violators of giving the required details to EC and filing income tax return since ages. Surprisingly, more than 90% of the unrecognised regional political parties registered have no elected representative in Parliament or state legislative assembly.

• The point of great concern is why unrecognised regional parties having no representation continue to exist and collect donations?

• The ongoing exemption to political party is an open incentive to every money hoarders to hide under the cover by forming a political party

The seriously interested folk in Government for bringing genuine reform would –

1) Ban any cash payment of even a rupee to any political party. When we are advocating that our milk man, vegetable vendor, tax driver and so on should be paid digitally so why not Political party who are not even covered under ESSENTIAL SERVICES ACT.

2) Make the income of every political party subject to Income tax provisions with immediate effect like any commercial outfit. At best they can be given liberal deductions for certain valid expenses.

3) The requirement of furnishing annual return of donations with Election Commission, An Independent watch Dog having teeth as well from the constitution of India for political parties before filing Income Tax Return MUST be maintained. The position of Election Commission MUST be made more independent with irrevocable powers.

4) There MUST be a maximum ceiling for any company can donate to political party(s).

5) Any violation wilful or not wilful by the political party would empower election commission to cancel the registration of political party.

6) There are several other non fiscal reforms which are also over due for cleansing the electoral system in India. That is not the scope of this article thus they are not dealt with.

Anything lesser than is not going to treat the cancer of corruptions widely rampant in political parties which is a mother of all corruption.

CONCLUSION – The proposed amendments for political funding is not well intentioned as it is going to further facilitate the acceptance of donation from anonymous sources by keeping it’s details away from the purview of Election Commission.

We have witnessed similar experience during the experiment of demonetisation done with 1.3 billion Indians in one go where political parties grossly abusing the exemption under income tax by acting as one of the big time money changers.

We cannot expect cleansing of corruption from other economic activity sphere when the controller of it has prospered to it’s existing powerful position by riding on the road of corruption made of black money from anonymous sources.

There was an urgent need for doing major surgical strike on political funding and what has been given is stale coloured pill not meant for this ailment thus leaving the disease (Black Money) to advance to its next higher critical stage for fulfilling the aspirations of certain select class of people.