Budget proposals on political funding reforms: Falling short on ECI and Law Commission recommendations?

New Delhi: The Union Budget for FY 2017-18 was presented by the Finance Minister, Shri Arun Jaitley on 1st Feb,’17, which included proposed reforms in the funding of political parties titled “Transparency in electoral funding”. The highlights of the Budget on electoral funding were made available in public domain.

The Budget, while promising transparency and accountability in political funding, does not answer questions on how it would be implemented at the ground level nor has it promised implementation of related reforms proposed by the Election Commission and the Law Commission of India. The Budget fails to address the issue of transparency, disclosure and penalties of political parties.

According to the complete budget speech of the Finance Minister (please see here), there were four main suggestions in the proposed Budget first and second of which touched upon the “suggestion by the Election Commission, the maximum amount of cash donation that a political party can receive will be Rs 2000 from one person” and that “political parties will be entitled to receive donations in cheque or digital mode from their donors”. This proposal to limit cash donations to Rs 2000 is flawed on three counts.

1) Accountability: The Budget does not promise scrutiny of income declared by political parties from various sources and the corresponding measures of penalization without which the reforms will remain incomplete. Unless scrutiny of accounts of political parties is taken up by a body approved by Comptroller and Auditor General (CAG) or ECI, the parties’ declared income is unlikely to reflect their true income.

2) Disclosure: The Budget does not propose that the details of all donors who donate above Rs 2000 be made available to the Income Tax department and/or an external body auditing the accounts of political parties. Even if the donors make donations by cheque/ DD or electronic transfer, unless their complete information is available for audit scrutiny, the sources of donations below Rs 20,000 to political parties will continue to stay hidden.

3) Political Will: The political parties were “entitled to receive donations in cheque or digital mode” even before it was proposed in the Union Budget and hence had the option of accepting donations in only such forms that can traced to a donor.

The third suggestion in today’s Budget was a proposed amendment to the Reserve Bank of India Act to enable issuance of electoral bonds to be purchased by donors to be redeemed in the account of a registered political party. While it is has been proposed that these bonds would only be available on issuance of cheques or via digital mode of payments, the Government of India is yet to frame a scheme in this regard. It is hoped that the amendment to the RBI Act and the corresponding scheme of GoI would take into account the necessity to abolish anonymous donations and provide details of all donors who opt to donate via electoral bonds.

The final suggestion was that the political parties will be required to file their return of income within the prescribed time and that only such parties which fulfil the above conditions would enjoy 100% tax exemption. It should be noted that the Proviso to Section 13A of the IT Act, 1961 already provides that if the treasurer of a political party or any other person authorized by that party fails to submit a report under sub-section (3) of Section 29C of the Representation of the People Act (RPA), 1951, for a financial year, no tax exemption shall be available for that party for such financial year.  ECI, as part of the transparency guidelines, also specified that political parties are required to file their return of income mandatorily. Thus, as the legal provisions were already in place, re-iterating an already existing rule of law does not add anything new to the proposed electoral reforms.

It is to be noted that the RPA stipulates that for a party to claim tax exemption, the treasurer of the party has to submit a donations report declaring details of donors who contributed above Rs 20,000 but there is no legal provision where political parties are debarred from disclosing details of donors who donated below Rs 20,000. This only shows a lack of political will.

According to an analysis by Association for Democratic Reforms (ADR), it was observed that in the past 5 financial years, between FY 2010-11 and 2014-15, BJP defaulted in the submission of its audit report with the ECI by an average of 182 days while INC defaulted by 166 days on average. NCP defaulted in filling its audit report for an average of 87 days while SP defaulted by 42 days.

While this is the first Union Budget to raise the issue of transparency in political funding with an attempt to make parties accountable of their funding, it is unfortunate to note that complete transparency in the finances of political parties has still not been adopted in the Budget of 2017-18 and the proposed reforms are inconsequential as the political funding will continue to remain opaque. While digital mode of payment has been encouraged, other forms of anonymous donations such as sale of coupons, have not been curtailed. For complete transparency, apart from digitization of donations, the Government of India should also take immediate steps to implement other electoral and political reforms proposed by the ECI and the Law Commission. The National and Regional Parties should, ideally, lead by example by filing complete and correct statements of donations to the ECI well in time for public scrutiny so as to encourage financial transparency. 

They must also provide all information on their finances under the Right to Information Act. This will go a long way in strengthening political parties, elections and democracy. For more information, please refer to https://goo.gl/o1qFYT.

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