Electoral bonds: end of transparency in party funding?

The Government of India has brought in Electoral Bonds Scheme notified in Gazette Notification No. 20 dated January 2, 2018. “Electoral bond” means a bond issued in the nature of promissory note which shall be a bearer banking instrument and shall not carry the name of the buyer or payee.

The bonds are issued in multiples of Rs 1000, 10,000, 1 lakh, 10 lakh and 1 crore. The eligibility criteria for purchase of these bonds is limited to a person who is citizen of India or Corporate incorporated or established in India.

The political parties who have been registered under the Representation of People Act 1951, and who have secured not less than 1% vote pool in the general elections are only eligible to receive electoral bonds.

Such bonds shall be valid for 15 days from the date of issue and no payment shall be made to any payee political party after expiry of the validity period and thereafter shall be transferred to Prime Minister’s Relief Fund.

Those who desire to buy bonds have to file an application physically or through online facility and furnish such particulars as required in the form. Upon verification, the bank shall issue the form.

The information furnished by the buyer can be demanded by a competent court or upon registration of case, by any law enforcement agency. The bond issued is non-refundable.

The objective of the scheme is to clean up and bring transparency in election system and to curb flow of black money into elections. The government says that the scheme leads to transparency, firstly, since the donor can purchase bonds from a specified bank and has to disclose in his accounts and banker will know KYC of the purchaser.

Secondly, every political party in its returns will have to disclose the amount of donations it has received through bonds to the Election Commission. Thirdly, the entire transactions would be through banking channels.

This is to replace the existing system of cash donations which involves unclean money and pave the ways of operating through the banking system.

In the past, to improve the system and for proper disclosure, the NDA government led by A B Vajpayee amended the Income Tax Act, 1961 to allow donations made to political parties to be treated as expenditure and give a tax advantage to the donor with a cap of 7.5% brought in by the Companies Act, 1956.

The UPA government brought in the concept of ‘Electoral trust’ under the Income Tax Act. `Electoral trust’ means a trust so approved by the Board in accordance with the scheme made in this regard by the central government.

Under this scheme, the donor would contribute donations to the said Trust, that is, the electoral trust, per direction and would distribute the same to various political parties. The ceiling of 7.5% on political donations by companies has been removed to encourage more funding.

The scheme has been incentivised as donations will be tax deductible, and the receiving political party receives the amount and is treated as voluntary contribution which entails tax exemption. The RPA Act has been amended to exempt parties to inform EC of any amount received above Rs 2,000, if made through bonds.

Political organisations were barred to receive foreign contribution under FCRA, 2010. In this context, earlier where any subsidiary of a foreign company having more than 51% foreign shareholding had given any donation, it would amount to foreign contribution as such comes under FCRA, 2010.

In the past, most of the political parties have received such contributions thus violating FCRA, 2010. To obviate such a situation, law has been amended by the Finance Act, 2016 with retrospective effect from 1976, whereby the subsidiary of a foreign company will not be considered as a foreign source and hence giving of donation by such companies will not amount to foreign contribution. Therefore, political organisations can receive from subsidiaries of a foreign company.

The process of election demands various expenses such as Office staff, Establishment, Candidature expenses, Election campaigns, Publicity, Tours, Travels and Election-related establishments. These expenditures are substantial and run into hundreds of crores. How this expenditure can be met? Therefore, every Political party crave to have funding from individuals, corporate entities.

Anonymous donations

The issues of the parties are, firstly the ruling party will have edge in knowing who gave the funds, how much was given and to whom funds were given (through the banks), but not others.

Secondly, the electoral process has no level playing field since only ruling party will gain. According to audit reports, and Income Tax reports submitted by parties to the EC, the BJP has been the biggest beneficiary of electoral bonds, garnering 94.5% of the bonds worth around Rs 210 crore. Thirdly, the system does not curb black money in Election systems.

The CPM has first moved the court in February 2018 against the bonds. The Association for Democratic Reforms challenged in the Supreme Court that anonymous donations through bonds would kill transparency in political funding and encourage quid pro quo between the ruling party and corporate houses.

Also, the Money Bill introduced last year had allowed even foreign companies to buy bonds, which was under challenge. On hearing the petition, Supreme Court ordered all parties to provide to the EC details of the funds received by them in a sealed cover by May 30 but did not give an immediate relief by way of an interim stay on the bonds.

The court, in fact, did not agree the argument by Attorney General that, the bonds would help to curb the use of black money.

When the system overhauls to transparency the need of the hour is to bring the donors in the public domain. Shouldn’t the public have right to know who funds political parties?

In political system, the donors will always have a fear of reappraisal in case opponent comes to power. But this is not an answer for not disclosing to public. This is a fundamental issue which awaits the Supreme Court decision.

(The writer is a chartered accountant)