Maj Gen Anil Verma (Retd)
New Delhi

Changing the laws that govern electoral funding

70% of political funding is from unknown sources; no ceiling on expenditure of political parties

Anil Verma February 19, 2017

Experience shows that political parties in most countries lack transparency with regard to funding. Some common challenges are unsuitable or overly ambitious legislation, a lack of political will to control the influence of money in politics, the popular acceptance of vote buying, a bias in enforcing rules and an inadequate allocation of resources in enforcing them.

In the Indian context, the two major challenges are: 70 per cent of political funding is from unknown sources and there is no ceiling on the expenditure of political parties. There is an urgent requirement to amend the laws governing electoral funding in India.

Section 77 of the Representation of the People Act (RPA), 1951, and Rule 90 of the Election Rules, 1961, lay down the limits on expenditure by candidates. Currently for parliamentary constituencies, the expenditure limit for a candidate is Rs 54-70 lakh and for assembly constituencies Rs 20-28 lakh. Sections 77 and 78 of the RPA and Parts VIIA and VIII of the Election Rules, 1961, govern the disclosure of expenditure by every candidate. The account is to be deposited with the district election commissioner within 30 days.

Section 29B of the RPA, Section 182(1) of the Companies Act, and Sections 3 and 4 of the Foreign Contribution Regulation Act, 2010, lay down the limits on contributions to political parties. There are no limits on donations to individuals or contributions to political parties. Companies can contribute up to 7.5 per cent of the average net profits of the three preceding financial years. Section 29C of the RPA, Section 182(3) of the Companies Act and Sections 13A, 80 GGB and 

80 GGC of the Income Tax (I-T) Act govern disclosures of contributions to parties. All political parties have to report donations of above Rs 20,000 to the Election Commission of India (ECI) and a company’s profit and loss account should reflect the contributions made to political parties.

Sections 39A, 78A and 78B of the RPA deal with the public funding of election campaigns. There is no direct state subsidy. Partial in-kind subsidy such as free allocated air time, free copies of electoral rolls to recognised parties and identity slips of electors to candidates are permitted.

Sections 8A, 10A, 11A and 123(6) of the RPA, Section 182(4) of the Companies Act and Section 13A of the I-T Act deal with penalties for candidates such as disqualification and loss of tax exemptions for political parties and fines and imprisonment for companies.

Some amendments to existing laws that could plug the current loopholes are:

Expenses and contribution: Section 77 of the RPA imposes a ceiling on the election expenses of a candidate from the date of nomination to the date of the declaration of results. Secondly, there is no ceiling on expenditure by political parties. A cap needs to be put on this. Section 182(1) of the Companies Act, 2013, should be amended to empower the shareholders, instead of the board of directors, to authorise corporate contributions.

Disclosure: This is at the heart of public supervision of political finance, and requires a strict implementation of the provisions of the RPA, the I-T Act, the Companies Act and ECI transparency guidelines. The December 2016 recommendation of the ECI regarding reducing the cash donation limit from Rs 20,000 to Rs 2,000 has been announced in the Union Budget. Accounts of political parties must be audited in accordance with the guidelines of the Institute of Chartered Accountants of India.

Penalties: The ECI’s recommendation that tax exemption be given only to those parties that have won seats in parliamentary or assemblies should be implemented. If a candidate does not declare his or her election expenses, Section 10A of the RPA should be amended to increase the period of his or her disqualification from three years to five years. However, similar penalties are not imposed on political parties for failure to lodge accounts of election expenses. There should be a penalty of Rs 25,000 a day for delays in submission. Political parties should be de-listed for delays in submission beyond 90 days. Parties giving false information must be fined up to Rs 50 lakh. 

Electoral trusts: Tax relief is given to electoral trusts on their donations to political parties. However, a mild penalty is imposed for failure to submit the annual reports of contributions to the ECI before the due date of filing tax returns. The RPA should be amended to provide for regulating electoral trusts with appropriate penal provisions in the case of a default. In conclusion, the legal framework is the starting point of the role that money ought to have in political life. As politicians themselves design the rules they are supposed to obey, regulation continues to include loopholes.

The writer is head, Association for Democratic Reforms

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