Thursday, July 28, 2011


Political donations are completely opaque

The series of scams and money-swindling by various political parties can’t be brewed without a continuous inflow of funds from ‘various’ external sources. Most of the time, political parties receive money in the name of donations or for political lobbying. And our judiciary provides them with a constitutional shield which indirectly legalizes the entire swindling.

Thus, the money these parties receive during elections (mostly) from corporate are deemed as donations and are recorded as non-taxable income. Under section 13A of Income Tax Act, all voluntary contribution to political parties above Rs.20,000 is exempted from income tax. A report by National Election Watch and Association for Democratic Reforms, released on January 2011, reveals that most of the political parties declared a major part of their donations to be over Rs.20,000. For instance, NCP declared the entire donation received to be in sums greater than Rs.20,000 while the correspondent figures for INC and CPI stand out to be over 50 per cent. In absolute terms, NCP declared Rs.664 lakhs as donation while INC and CPI declared around Rs.7000 lakhs and Rs.119 lakhs respectively as donation for the year 2007-08 and 2008-09. Interestingly, BJP declared merely 19 per cent of total donation to be in sums of over Rs 20,000 but in absolute terms the party topped the list with total nontaxable donations of Rs.5,500 lakhs.

On the other hand, corporate who file (only a few actually do this!) their donation are entitled to get a tax exemption under section 80G of the Income Tax Act. The report further revealed that Bharti Electoral Trust donated Rs.17 crore to different political parties. Similarly, Torrent Power Ltd. and General Electoral Trust were leading donors to political parties. A simple analysis indicates how it’s a mutually convenient solution for both. In case political parties want to forego tax, they need to simply club donations and file it as sums of more than Rs 20,000 and if donors want to forgo their tax (and keep their name anonymous) they just need to make donations in 'tax-friendly' denominations.

In most of the cases, there are mutual understandings between parties to allow the corporate to convert their black money into party contributions. Such arrangement also gives a leeway to hawala, untraceable and undeclared money transfer. There are no laws in place that ask parties to file disclosures about the usage of money or rather there is no third-party independent audit about the deployment of such donations. Moreover, PAN Number filing for lower denomination is not even mandatory. And in case the PAN Number is filed, there are no cross-checks to verify the credibility.The matter gets worse in case of cash donations. The recent garland (worth a few hundred crores) gifted to Mayawati, is a case in point.

In countries like US, UK and Australia, political donations are taxable and parties have to mandatorily file disclosures about the fund-utilisation. In the US, even the money donated directly to a candidate is regulated by the law (both source and amount) and is scrutinised by the Federal Election Commission.

Given the scams and black money deposition spree our political parties and corporate are in, the Supreme Court should take the initiative to immediately cancel all exemptions and make disclosure filing a mandatory procedure for both the donors and receivers!


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