Pitfalls in political donations

Updated on: May 13, 2011

Any tax-exempt political donation must be to the Election Commission, and not to the political parties.

One can by all means choose and direct his/her donations. Some of us are inclined to donate to Red Cross . Some are easily moved by the plight of hunger and donate liberally to poor feeding homes and institutions.

But when one donates with a quid pro quo in mind as well, he should be expected to be indifferent to the recipient of his munificence. The Income-Tax law divides donations broadly into two categories — altruistic purposes named after none in particular like the Prime Minister's National Relief Fund and funds named in the memory of someone. The former normally make the grade for 100 per cent deduction whereas the latter normally make the grade for a 50 per cent deduction though this unwritten norm is breached by certain aberrations. For example, the Direct Taxes Code vide Schedule 7 somehow relegates National Children's Fund to the second category though child welfare and uplift is as laudable and altruistic as relief to those hit by a natural calamity. The short point is trust designed more to perpetuate the memory of a deceased person or otherwise restrictive deserves lesser indulgence from the exchequer, though it could be working also for altruistic purposes ibesides perpetuating the memory of the person it is named after.

Why the indulgence

It is in this context that the indiscriminate, mindless and limitless indulgence to political donations that baffles one. A company can donate within the limits prescribed by the Company Law – 5 per cent of profits - to political parties and claim it has tax deductible. For others, sky is the limit except that no negative income is allowed to engender as a result. The mushrooming growth of political parties in this country, it is feared, has got both political and financial undertones. It is believed that those seeking to give a veneer of inscrutability to their ill-gotten wealth float political parties with alacrity, secure in the comforting knowledge that they (political parties) are holy cows besides being immune from tax.

Add to this the limitless deduction for donations to them and the heady concoction is complete. One-man parties, so to speak, which this country is replete with, are bound to make full use of this dispensation by transferring the substantial part of the income of its progenitor onto the political party he/she has founded and both thumbing their noses at the taxman.

Role for EC

If at all the Government wants to encourage political donations, it must be to Election Commission of India.The EC in turn should be obliged to use the money thus collected for the altruistic purpose of voter education a la investor education done by the market regulator Securities and Exchange Board of India, if not for state funding of elections which many believe would be an exercise in futility till times are more propitious.

One of the possible use to which such funds can be put in the run-up to an election before campaigning is allowed to kick off is media and other publicity. While the EC cannot obviously display the antecedents of the candidates in fray in the manner of credit information bureau running a credit check on the wannabe borrower, it can run an educatiove campaign with a list of what the representative is expected to bring to the table without personalising the campaign.

Apart from defraying the expenses of voter education, the EC might also be allowed to use the funds for meeting its organisational expenses which mounts on the election eve. Corporates incidentally, apart from a few honourable exceptions, are loath to go overboard and declare their political affiliations which is what happens when they donate transparently through their books. The fear of reprisal and backlash holds them back.

In fact, corporate donations to the EC would not only be more desirable but also could be more substantial as to defray at least a part of the expenses the country routinely spends on election from taxpayers' money. Besides, it insulates corporates from the fear of reprisal by the party not benefitting from their munificence.

No counter should be given by the taxman to feather or can possibly feather private nests. If tax is collected for altruistic purposes, its abnegation should also be for altruistic purposes.

(The author is a Delhi-based chartered accountant.)

Published on May 14, 2011

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