If a nation can push through successfully a demonetisation programme which affected 1.3 billion people, it should, actually not be difficult to trace such cash donations if there is a will
The concept of an electoral bond is interesting and opens up debate on political funding. The bond is more likely to be a certificate, that is in the nature of ‘bearer instrument’, that is issued by banks, which can be bought by anyone by cheque and the same is then deposited to the concerned bank account of the political party. There is no interest paid on this amount, and hence calling it a bond is a misnomer as it is a donation certificate without disclosure of the name of the donor.
Election funding is extremely opaque in India and can be termed as a black box. It is hard to figure out how the system works, as the structure is unique. The donor can pay by cheque and get identified, and hence claim tax deduction as it is a donation. The party receiving the donation does not have to pay tax on the amount received if it is by cheque. The same donation can be transacted in cash but here the donor gets no benefit and the party can take only up to R20,000 in currency. This amount has now been brought down to R2,000. At present, often party coupons are issued in small denominations which can never be traced. Political parties are subject to audit by both the Election Commission and I-T department with their objectives being different.
The raison d’être of such forms of donations is that the donor does not want to show oneself and the receiver would like to protect the identity of this person. Also, it is better-off in case the amount does not have to be revealed as it can be used without any accountability. If this was not the motivation behind the transaction, then every donation made would be via a cheque and everyone would be happy. Now parties are opaque in their funding and as they are answerable to two regulators, would like to conceal expenditure from the EC. Therefore, cash helps as it can be used with great flexibility without any disclosure.
Do the budgetary proposals really help? The answer unfortunately is that prima facie it appears that neither of the measures will work. The bond has to be paid in cheque, and if anyone is willing to do so, it could have been done even today under normal circumstances considering that such payments can be used for tax savings which is not the case for cash. Hence, the bond can be a losing proposition.
The reduction of the cash donation limit to Rs 2,000 may also not really help, for if one was dodging the system when it was Rs 20,000, the same can be done with parties claiming that they received one million such small donations of Rs 2,000. Further, it the Election Commission and tax department were not able to, or not willing to, dig deeper with the Rs 20,000 limit, it would be even harder to track the smaller denomination of Rs 2,000. It is something like gambling where cash transactions take place all the time and unless there is a raid one can never find out the amount involved. And in politics it is generally believed that as most parties deal in cash at some stage in the operating processes, no one is really serious about identifying the same as it will open the proverbial can of worms.
Are there any other options then? One can think of first making all contributions to the party taxable and as a corollary term any cash payment as being illegal. In fact, if there is a gift tax being levied on individuals, there is no reason for such transfers being given tax-free status. Also, there could be strict measures taken to identify such cash donations. If a nation can push through successfully a demonetisation programme which affected 1.3 billion people, it should, actually not be difficult to trace such cash donations if there is a will.
However, to ensure that the ‘white’ route is chosen the government can consider making all political parties registered corporate-like entities. There would have to be a structure created with stake-holders who would be the donors. Just like how the capital of a company increases, so could the corpus for the party. Hence, the donors would be the owners with proportional voting rights which will make the party also answerable.
The share value could be linked with market conditions and these certificates could be bought and sold by the stakeholders. There could be fresh issuances of the corpus fund where the value of a certificate can be higher (like premium) in exchange of ownership of the party. Hence, while R1,000 to begin with would be equal to one share in ownership, a market price of say R1,200 can make the fresh issuance at this rate with a premium of R200. This will make the party democratic and also well regulated as it will have to maintain a balance sheet and P & L account which is audited. All such purchases of certificates would get tax benefits for both the party and the co-owner. If parties however, choose to remain outside the concept then the amount would be taxable in its hands.
The critical thing is to make cash payments illegal and punishable because this is the only way to check proliferation of black money. In fact, an advantage that exists in the present environment is that the GST is around the corner. To make use of the tax credit on the purchase side, all sellers must necessarily be registered, and hence the suppliers of any good or service to the political party would ensure that there is a trail to the party. This could be the right time to bring in this reform so that when the next general elections are held, the model will be in place.
Two areas of use of cash have to be addressed. Cash will still be inescapable as it is often used for bribing the electorate or paying for muscle power which works to threaten people, as well as cause disruption. Second, the administrative machinery must be made immune to human intervention to reduce scope for bribes. To carry out this objective there has to be an increase in vigilance by the two regulators with stringent action being carried out in case this is traced.
The concept of giving the donor a right to ownership of the party can be debated. But for those who want to also look at the governance of the party a call can be taken based on performance. In fact, going ahead the pricing of the ‘political party share’ can be driven by market forces where a losing party has to give more shares or rights to ownership to the donors. This will be an interesting proposition.
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