Tax filings point to lack of transparency

Tax filings point to lack of transparency

New Delhi: Many national political parties in India did not utilize even half their declared total receipts between 2001-02 and 2005-06 despite one general election and 35 state elections being held in this period, according to an analysis of the income-tax (I-T) filings of seven political parties.

Politicians who do not wish to be named say that the average election expenditure by the candidate of a mainstream party in a Lok Sabha constituency could go up to Rs2 crore.

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The tax filings by the political parties show they spent, on an average, Rs75 lakh on every seat they won (the average also includes the amount spent on seats they lost; the number was arrived at by dividing total expenditure by the number of seats won).

The Election Commission, or EC, the constitutional body that conducts elections, caps the expenditure on each Lok Sabha seat at Rs25 lakh and that on each assembly seat at Rs10 lakh.

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A psephologist and media expert said political parties are clearly under-reporting the amount they spend on elections, but added that the limit set by EC is low.

“Strictly going by the current inflationary trends, one can say that this limit is low. It does not quite allow the candidate to reach out to every voter in his constituency. For instance, for a Lok Sabha constituency with a population of 10 lakh, given the EC limit, each candidate ends up spending only a little above Rs2 on every voter. Today, almost 80% of the candidates end up exceeding the EC ceiling. However, the problem is that none of the political parties regularly file expense statements. If they had done so, the EC could have increased the limit further," said N. Bhaskar Rao, chairman, Centre for Media Studies, or CMS. To be sure, candidates pick up part of their electoral expenses, but the numbers culled from the tax filings clearly demonstrate the need for more transparency in the way political parties raise and spend money.

Mint reported on 22 September that one-fifth of the country’s electorate was paid cash for votes and that in the recent assembly elections in Karnataka, one in every two voters was similarly induced.

The tax filings of seven parties were provided by the I-T department in response to a Right to Information application filed last year by the Association for Democratic Reforms, an Ahmedabad-based activist organization that isn’t associated with any political party. The seven are the Indian National Congress; the Bharatiya Janata Party, or BJP; the Nationalist Congress Party, or NCP; the Bahujan Samaj Party, or BSP; the Communist Party of India, or CPI; the Communist Party of India (Marxist), or CPM, and the Samajwadi Party, or SP.

While the first six are recognized as national parties by EC, the SP has been included in the analysis because of its increasing influence and importance in national politics.

Need for transparency

Yashwant Sinha, a former Union finance minister and a Rajya Sabha member of the BJP, said there is an “urgent" need to make funding of political parties more transparent. “While corporate houses can donate funds to political parties, most of them don’t do so because of fear of persecution in case a rival party or group comes to power. That is why, above-the-table donations are still much less than under-the-table funding."

Sinha’s reference to under-the-table funding deals with contributions disclosed neither by the donor nor the recipient. Political parties have been exempt from I-T, subject to certain criteria, since 1979.

Interestingly, till 1996, political parties were not filing I-T returns. They started doing so only after a Supreme Court order on 20 February 1996.

The numbers themselves hide more than they reveal.

For instance, the Congress, India’s largest and richest party (with a balance sheet size of Rs228 crore on 31 March 2006, according to I-T filings), derives most of its revenue from the sale of coupons.

In 2005-06, the filings show, revenues from sale of coupons were Rs95 crore, almost 800% more than the year’s contributions. In 2004-05, the party received Rs162 crore from the sale of coupons. Congress party’s treasurer, Motilal Vora, said the coupons were “general coupons... We sell them generally to different persons."

“All our returns have been filed properly in accordance with I-T laws," Vora added.

In 2005-06, the Congress party spent only 55% of its total receipts of Rs124 crore. The trend of not using all receipts, however, is common to most parties.

Inflow higher

Indian laws make it mandatory for public trusts to spend 85% of their surplus for charitable purposes every year to benefit from I-T exemption. There is no such restriction on political parties.

Most political parties do not utilize even half of their total receipts and the unutilized part is ploughed back as reserves into their balance sheets. In 2005-06, the SP spent less than one-fifth of its total income. The amount of profit held back by the party can comfortably meet its expenses for the next four years, even if it does not receive any contribution for the next four years. Similarly, the Congress party, the NCP and the CPI spent only 55%, 66% and 44% of their revenues, respectively.

The BJP, however, spent more than it received, partly because of expenses on subsidized publications. The party is also known for its extensive organization machinery.

“When political parties are holding so much surplus, the same should be utilized for the welfare of society, too. What good is sitting on so much cash when they don’t have to give any dividend income. They can return the money to the public through some welfare activities or can also donate to the Prime Minister’s Relief Fund," said a tax expert at a multinational audit and consulting firm who did not want to be named.

One political analyst, however, said Indian parties and politicians end up spending a lot more than indicated on their books. “One has to spend a day with them on the field to know how much money they spend on social activities. In some ways, they fill in for the role that schemes for social welfare play in countries like the US. However, all these expenses political representatives incur are often not reflected as party expenditure and hence, accounts of parties might not show a high level of expenses, even though money is being spent," said political analyst Mahesh Rangarajan.

Other experts do not have any problems with the money being spent or not being spent by parties. They just want them to be more transparent.

“I don’t think there is any problem with exempting political parties. However, the real challenge is to make their assets more transparent. An effective enforcement mechanism is needed to see if political parties are keeping a list of donors and whether this list is matching with the receipts, besides occasional verification of this information by I-T officers," said Pratap Bhanu Mehta, president, Centre for Policy Research, a New Delhi-based think tank.

And, more than looking at the fairness of tax exemptions, it is important to ensure that India moves to a system of election funding where all parties are treated equal, saidD. Raja, national secretary, CPI. “The concept of state funding for political parties has to be accepted and implemented to ensure all parties are on an equal footing."