Asia Times: National: Friday, December 01, 2017.
The Aam Aadmi
Party, (AAP) a regional party which is in power in Delhi state, has just
received a notice from the Income tax Department alleging that it had
“incorrectly disclosed hawala money as voluntary donations”. Hawala is a
colloquial Indian term for the informal and illegal transfer of cash across
borders. The IT Department has raised a demand for Rs 300 million in taxes,
upon the sum of Rs 680 million which AAP declared it had received in the fiscal
year, 2014-15.
Political
parties in India are supposed to receive 100 per cent exemption from tax under
Section 13A of the Income Tax Act. But parties have to file income tax returns,
along with the details of every entity that has contributed over Rs 20,000.
The AAP’s
leaders have responded angrily to the IT notice, saying that this is a
“vindictive” attempt on the part of the BJP, which rules at the Center, to use
government agencies to harass the AAP. The AAP has also pointed out that
national parties such as the BJP and the INC receive far more in the way of
funding from “unknown sources”.
Indeed, the
reported financials of India’s two largest national parties do indicate vast
amounts coming from anonymous sources. The Association for Democratic Reforms
(ADR), an NGO working for electoral and political reforms, has released many
reports analyzing the nature of political funding.
Big
Spending, Low Transparency
According to
the ADR analysis for 2015-16 (April 2015-March 2016), the BJP declared Rs 5.708
billion in total income for 2015-16. As
much as Rs 4.6 billion (81% ) came from unknown sources. The INC declared Rs
2.615 billion in total income and received Rs 1.86 billion (71 %) from unknown
sources. Anonymous funding is possible due to a loophole in tax-reporting
norms. Until March 31, 2017, political parties could receive cash donations of
up to Rs 20,000 per donation from anonymous sources. This meant that in effect, large cash
donations could be broken up into multiples of Rs 20,000 and entered
anonymously. Political observers claim that this mode of “book-cooking” is
standard practice.
Campaign
expenditure is believed to be the biggest sinkhole for black money in the
Indian economy. Hundreds of billions are spent in every General Election, much
of it on buying local goons, as well as on the gratification of voters by
offers of cash and liquor.
The Center
for Media Studies, a Delhi-based NGO estimated that around Rs 300 billion was
spent in the General Election of 2014 .
This is orders of magnitude more than the officially declared expenditure of
all parties and candidates. This CMS estimate includes Rs 35 billion which was
spent by the Election Commission. The major political parties declared that
they spent only about Rs 17 billion in campaigning.
The BJP
claims that it spent Rs 7.1 billion while the INC stated that it spent around
Rs 5.2 billion. Individual candidates could also spend up to an official personal limit of Rs 7 million, in addition
to party expenditure (which has no mandated upper limit).
Mysterious
Changes
The last
Union Budget in February introduced two clauses that could change the nature of
political funding. One was cosmetic. The Budget lowered the limit for anonymous
donations to Rs 2,000. As cynics pointed out, this would mean a little more
work for accountants, who would have to break up large cash donations into
smaller fractions.
The second
change was puzzling, given that it was touted as a move towards transparency.
The Budget introduced the concept of “election bonds” a new financial instrument, which would allow corporates to
donate anonymously to political parties. What’s more, the Budget amended
Company Law to remove a cap on corporate donations to political parties.
Eight months
into the fiscal, further details about the nature of the proposed bonds are
unavailable. Right To Information (RTI) requests for information have been
stonewalled with various departments of the Ministry of Finance, the RBI and
the Election Commission denying that they have any information to furnish.
Under the
previous tax regime, a corporation could not donate more than 7.5 per cent of
the average net profit of the past three years to political parties.
Corporations had to declare the quantum of political donations and the
recipients of those donations in their audited balance sheets. This was a
fairly transparent system.
Under the new
rules, corporations can donate as much as they choose, to any party. They also
don’t have to disclose the recipients. The instrument for this is a bearer
bond, which is to be issued by the RBI. A corporation can buy these election
bonds and transfer them to the political party of choice, which can then encash
these instruments.
This scheme
would make the process of donation completely opaque to citizens. It would also
encourage the setting up of shell companies purely as vehicles to funnel
political donations. Under this system
it would be unclear to citizens which corporate donated how much, to which
party.
However, the
RBI will have to oversee this
instrument, which would be processed through the banking system. Hence, the RBI
would be aware of the identity of both donor and recipient. Opposition
politicians and Right To Information activists say that this, in effect would
mean that only the ruling party would have access to this information via its
control of government agencies. That is a situation, which could lend itself to
obvious abuse.
Assuming this
system gets off the ground, it could remove all transparency and completely
skew access to funding in future elections.
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