Context
Electoral reforms announced in the Budget are not what they are claimed to be — they will neither cleanse our politics nor bring transparency
Issue: Dissection of the Budget proposals wrt electoral funding
Reforms announced
- Cash ceiling for donations: A ceiling of ₹2,000 on the amount of cash donation that a political party can receive from one person in a year
- Donations through cheque or digital mode: Political parties would be “entitled to receive” donations by cheque or digital mode from their donors
- Electoral bonds: A new scheme of Electoral Bonds
- Filing of IT return in prescribed time: The Finance Bill now proposes a new proviso in Section 13A clause (d) of the Income Tax Act 1961 that explicitly says that the return should be filed within the stipulated time limit
Critique of the reforms
The second and the fourth components of this scheme are redundant, as these are no different from what the existing law provides for
- It does not require a new law to say that political parties are “entitled” to receive donations by cheque or digitally. They were always entitled to this and were already doing so
What was needed?
Instead we needed a new law which mandated that the parties would be “required” to receive donations by cheque or digitally.
- Enforce present law: Similarly, the existing law requires political parties to file their income tax returns to enjoy tax exemption. Big national parties file their return months after the due date and many parties don’t file the return at all. No one gets penalized for this non-compliance. The government really did not need an amendment if it had the will to enforce the existing law
- Cash donations: The existing limit of ₹20,000 on anonymous donation as per Section 23 of the Representation of the People Act (RPA) has been left untouched. Only a new, additional, clause that limits cash donation from one source to ₹2,000 in one year has been proposed. Moreover, a limit of Rs 2000 would merely a mean more number of fraudulent book entries than earlier
What was needed?
A limit on overall donations: Following the Law Commission’s recommendations, the EC had proposed that no party should be allowed to receive more than ₹20 crore or 20% of its overall donations from anonymous sources
- Trouble with electoral bonds: Here is how the scheme is going to work,
- Anyone who wants to donate to a political party would be able to purchase bonds from authorized banks. This purchase will have to be in ‘white money’ against cheque and digital payments only
- Once purchased, these bonds will be like bearer bonds and will not contain the name of the eventual beneficiary
- These bonds shall be redeemable only in the designated account of a registered political party within a prescribed period
- So, the donor’s bank would know about who bought how much of Electoral Bonds, but not the name of the party which received it
- The party’s bank would know the amount deposited through Bonds, but not the identity of the donor
The problem
The Income Tax authorities and the EC would not know anything: reporting of donor, beneficiary, or even the amount of contribution has been exempted by amending the Income Tax Act Section 13A (b) and the RPA, Section 29C
Example
Author gives the following example to make it clear that provision of electoral bonds is not going to boost transparency
Let us think of a classic quid pro quo. A government favours a business house in a mining or spectrum or oil deal to the tune of ₹5,000 crore. Both of them have a fifty-fifty deal. Under the existing arrangement, the business house would have to either declare in its balance sheet a ‘donation’ of ₹2,500 crore to the ruling party, or find that much cash to secretly hand over to the party bosses. If the payment is in white, the party will have to declare the amount and the name of the company to the Income Tax authorities and to the EC. Now, the company could simply purchase Election Bonds worth ₹2,500 crore and hand it over to the party. The company’s balance sheet will show “purchase of Election Bonds” with no name of the beneficiary, while it enjoys 100% tax deduction on that amount. The party will simply deposit the money in its account, with no obligation to report anything to the IT authorities or to the EC. It may well report an innocuous amount of, say, ₹3.8 crore as its annual reportable income!
Why would anyone give any money to a political party through cheque or digital payment and face all the hassle of disclosure when a perfect cover in the form of electoral bonds has been provided by the law?
