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Thursday, Nov 13, 2003

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Impose ceiling on tax-free donation

K. Parthasarathi

WITH elections to four State Assemblies round the corner, the issue of donations to political parties assumes importance. Based on the recommendations of the Indrajit Gupta Committee on Funding of Political Parties, the Government, in a recent legislation, provided full tax exemption to individuals and corporates for all contributions to registered political parties, with no ceiling on such donations. The object of the recent legislation is to infuse accountability into the process of corporate donations to political parties. It is also a form of partial `funding' of election expenses by the government, which foregoes the tax. This decision to confer respectability on company donations to political parties with tax concessions is bound to usher in a regime of `quid pro quo'.

Granted that such exemption is inevitable to bring in an element of transparency, and to curb what would otherwise be entirely black in colour. But there should be a ceiling on donations beyond which tax exemption should not be applicable.

There is at present a ceiling of Rs 6 lakh and Rs 15 lakh for the election campaign expenditure for each Assembly and Parliameseat respectively. Should there not correspondingly be a ceiling on tax-free donations received by political parties based on the number of seats contested in the previous election or to be contested in the current election.

For example, if the number of members in a state legislature is 250, the permitted tax-free donations to a regional party should logically not exceed Rs 15 crore, assuming that all the seats are contested by the party. The modalities can be worked out once the principle is accepted.

It is also not known whether the tax benefits would be extended only to those donations made to such parties whose accounts are audited. There can, however, be no bar on taxable donations by individuals and corporates, as the parties need money to run the outfits.

Unlimited tax-free donations defeat the very purpose of fixing ceilings on expenditure for individual seats. Political parties are no charitable institutions needing governmental support to garner donations. They have enough clout and expertise to raise the money needed for running party outfits and for their recurring expenses.

(The author is a Chennai-based freelance writer.)

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