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Political funding reform

October 16, 2012

Some thoughts on reforms on funding of political parties. These are lower order reforms.

(The key is to curtail:

  1. the need for funds by changing the electoral system from FPTP to proportional representation.
  2. the willingness to spend by considerably reducing discretionary powers and privileges of elected reps)

These rules should also apply to political NGOs (eg: pressure groups like India Against Corruption).

1. Limit cash receipts to 10% of total receipts:

Existing rules allow political parties to receive unlimited anonymous cash donations (each donation not exceeding Rs. 20,000). No wonder, using this loophole, each party annually receives anonymous/small cash donations running into crores! Cash donations should be limited to a particular %, say 10%, of total receipts. This will limit non-transparent funding while continuing to allow even poor people to give to their preferred political party.

2. Eliminate tax deductions for political donations:

Present laws treat political parties as ‘charitable organizations’ – donors get a 100% deduction u/s 80GGC (donors to most charitable organizations only get 50% deduction).

  • However, politics is no charity (even if you work honestly). Elected representatives are paid (though, to attract honest talent, pay should increase substantially and perqs need to be abolished) and other politicians do no charity. So, there is no rationale for diverting taxpayer money by giving 80G/ 80GGC deductions to donors particularly when many taxpayers are opposed to many political parties.
  • Such deductions encourage fake donations to manage tax and also promote black money eg: ‘A’ donates (by cheque) to a political party, receives a tax benefit and then gets back the money through cash or other means.
  • If state funding of political parties is considered desirable, then there should be a well-thought direct mechanism  instead of indirect funding like tax deductions, free media space, etc. We should atleast know how much we are funding and to whom.

Separately, we should continue the current practice of NOT taxing political parties for receipt of donations (receipt of donations is not ‘profit’ and taxing receipts will either discourage well-intentioned individual donations or encourage those to be done in an unaccounted way).

3. Transparency: Timely updated websites of political parties should carry, in addition to detailed audited accounts,  names and details of all donors (other than 10% mentioned above) in a way (excel sheet) that enables analysis by any person. Donors above, say, 50K should also quote PAN. Parties should give this info to the Income Tax department just like Banks, NBFCs do (Annual Information Return?). Election commission should have powers and resources to investigate complaints of unaccounted expenses/income.

I invite suggestions and brickbats.


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