Vinod Dhall

Political Funding

Let’s first accept that Politics is a legitimate activity, as it helps organize the life of citizens, saving them time, effort, accidents, injustices and conflicts. Otherwise, people will act and have acted in the past tribally resorting to the law of jungle, driven by instinct and arbitrariness, fighting and killing.

Therefore, the political structures must be supported individually and collectively. In the current scenario it is incumbent upon the political parties as well to convince the Citizens that they are primarily working to fulfill that mandate.

Arguably, the citizens have to proactively convey their concerns and issues to their political representatives and seek to influence public policies.  Citizen Participation has to be much more than just voting-including financial support.

Given the above backdrop our laws must consider Political Organizations as Socially relevant Institutions. In some ways, the Political Parties are treated on the same levels as NGOs and Charitable Organizations and Trusts. However the disclosure requirements are not as rigorous

Since the Political Parties are charged with the responsibility of developing Vision and Strategy for whole of the Country, these may be treated above NGOs and trusts: They develop policy which is akin to “research and development”

Therefore, the following steps are suggested – i.e. to get the donors and political parties out of the perverse addiction to ‘black money’. It is axiomatic that a large part of the political funding comes from businesses /corporates.

  1. Political Funding is currently allowed as a legitimate expenditure by corporates, i.e. 100% of the donation is charged to P&L.
  2. Allow a deduction of 200% as “Policy development Deduction”
  3. This additional deduction will encourage the corporates to weather the adverse consequences and/or develop strategies to manage the competing political forces.
  4. A case has been made out for State Funding of elections/ political parties. Well, this is a step in that direction; state funds Rs 30 for every Rs 100 collected/ attracted by a political entity thru its efforts/ attractiveness to the donors.
  5. Commence placing easy disclosure requirements on Political parties, and ratchet them up annually to achieve full disclosures in say 10 years.

We will possibly achieve a reasonably clean and transparent political funding system and inflict a hefty blow ( I wish it was a death blow) on the black economy- in 10 years.

Sec 2 – Political Funding – 2

The PDD (Policy Development Deduction) addresses political donations by Corporates and all entities that prepare auditable operating accounts for taxation purposes.

The businesses will have to get receipts from the Political Parties to be able to claim PDD. The audit trail of such receipts needs to be established : the issuing political parties must have PAN.

To ensure that the rightful person is collecting cheques /donations on g=behalf of the right Political entity that the Business wishes to support, all politicians must be issued a PIN- Politician Identity Number- same as DIN to identify directors on the Boards of Companies.

The political fund raiser identifies himself with a valid PIN, approaches a business for donations. A business /Corporate who also has a PAN, issues the cheque to the Party with a PAN. The Fund raiser issues a receipt with due PAN and PIN.

Therefore, the transaction happens in a transparent and traceable manner.

Sec 3- Political Funding – 3

Individual Donors

This intervention will be most useful for furthering democratic values in the Citizenry, as it will improve its interaction with the Political system .

Let us provide for a PDD (Policy Development Deduction) to individuals, again 2x of the funds given be allowed as deduction from Taxable Income (U/s Sec 35?).

Now, please visualize a politician approaching individuals/group for funding – who are not averse to funding them as 60% is being paid for Tax deductions. The involvement with politics improves.

Citizen’ concerns get transmitted to the Political establishment more forcefully. The Political power shifts somewhat to Citizenry – the hand that feeds(?)

The Political System, on a back of the envelop basis requires around Rs 6,000 Crores per year which is about 0.0005 or 0.05% of GDP – a pittance.

The Govt will forego tax revenue of Rs 3,600 Crores, again a sum that will not hurt Countries fiscal situation.

The gains in reduction of Black economy will more than make up for these Tax deductions

More Under Income Tax

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June 2021