Re: Tax returns of political parties can be made public
POLITICAL PARTY FUNDS - Tax filings point to lack of transparency
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.
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.
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-thetable funding.” Sinha’s reference to underthe-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 chari table 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 Delhibased 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, said D. 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.” email@example.com To read Part I and Part II of this three-part series as well as an interview with a tax expert analysing the returns of political parties can be seen at www.livemint.com/partyfund.htm
Money, it is easily said, makes the world go around; and politics, around and around. What’s not so easy is nailing the numbers.
Cut to 2003: then law minister Arun Jaitley, while moving amendments to the Representation of the People Act (RPA) in Parliament, said the proposed changes were aimed at bringing accountability into the political system.
The amendments were later ratified by the Parliament and changes were also made in the Companies Act and Income Tax Act, all aimed at ensuring greater transparency and reducing the role of unaccounted money in funding of political parties.
Five years down the line, it appears that the changes then made in the RPA have had little impact on the funding of most political parties. India Today invoked the Right to Information (RTI) Act to get details of funds collected by political parties.
Cutting across party and ideological divides, one fact stands out: almost all political parties still get a large chunk of their funds from undisclosed sources.
The seven recognised national parties—Congress, Bharatiya Janata Party (BJP), Bahujan Samaj Party (BSP), Communist Party of India (CPI), Communist Party of India-Marxist (CPI-M), Rashtriya Janata Dal (RJD) and Nationalist Congress Party (NCP)—collected over Rs 309 crore from donations, voluntary contributions, election funds and sale of coupons during 2006-07 (The figures available for the NCP and RJD are for 2005-06).
Surprisingly, the source of funding has been disclosed only for Rs 15 crore. Similarly, nine regional parties—Telugu Desam, Lok Janshakti Party, Dravida Munnettra Kazhagam (DMK), Biju Janata Dal, Shiv Sena, Rashtriya Lok Dal (RLD), Janata Dal-United (JD-U), Shiromani Akali Dal and Samajwadi Party—collected over Rs 94 crore from voluntary contributions, election funds and coupon sales but have disclosed the sourcing for a piffling Rs 15 lakh.
Put together, 16 of the largest political parties in the country collected over Rs 400 crore of which less than Rs 16 crore was attributed to known sources. RTI applications sent in May this year regarding the returns filed by parties like the AIADMK, National Conference, Indian National Lok Dal, People’s Democratic Party (PDP), Janata Dal-Secular and Asom Gana Parishad (AGP) remain unaddressed.
A close scrutiny of the tax returns of parties show that most do not take income tax provisions seriously.
A number of parties file returns much past the deadline, do not file them in the required format, and do not bother to attach the prescribed documents.
The IT Department, in turn, shows no keenness to scrutinise the files and impose penalties as per the rules. A senior official at the IT Department says they keep the tax returns of political parties as they are filed; sometimes they scrutinise them and send notices out.
But because they can only address the income of parties, which is exempt from income tax, the scrutiny becomes meaningless. Most parties don’t enclose details of fixed assets. When they do, the figures are often incorrect or misleading.
The CPI, for instance, puts a value of Rs 5.94 lakh on its head office at Ajoy Bhavan in New Delhi’s Rouse Avenue, even though the most tightfisted of realtors would write out a cheque a hundred times that amount for the property.
Hand it to the Congress. India’s grand old party has led the way in filling its coffers. Though headquartered in Delhi, the Congress accounts are audited by a Kanpur-based chartered accountant. In 2006-07, the Congress collected Rs 34.64 crore as donation and Rs 123 crore from the sale of coupons. Yet the party has only disclosed a list of 102 donors who each paid more than Rs 20,000, the contributions totalling Rs 12 crore. The party also claims it spent Rs 48.76 crore on elections though it gives no details of such expenses.
And though the deadline for filing the returns for 2007-08 was October 31, 2007, the ruling party had filed the returns on February 8, 2008. To a query on whether penalties would be imposed on political parties for such delay, spokesman of the Central Board of Direct Taxes, Shishir Jha, said, “If any discrepancy is found, appropriate action will be taken according to law.” When asked about action taken so far, he said: “According to income tax law, we can scrutinise the income tax returns of the past six years.”
The lotus seems parched in comparison. India’s main opposition party has shown a loss of Rs 1.01 crore for 2006-07. The BJP, which once claimed to be the party with a difference, has kept up its difference in one way at least: it is the only political outfit to have secured bank loans worth Rs 8.08 crore.
It earned Rs 55.61 crore through voluntary contributions during 2006-07 but disclosed the names of only 107 donors for a total contribution of Rs 2.95 crore. Like the Congress, the BJP too filed its ITR for 2007-08 on March 31, 2008, six months after the deadline of October 31, 2007.
Unlike the BJP, Mayawati’s BSP seems to have no need for loans. The party took a donation in excess of Rs 20,000 in 2004-05, which it disclosed in its return: it received Rs 19 lakh from ITC Limited.
In other years, Mayawati has enclosed an affidavit which says the party “has not received any single voluntary contribution in excess of Rs 20,000 during the year”.
The BSP collected Rs 45.05 crore during 2006-07 as against Rs 2.55 crore a year earlier. According to its tax return, the party purchased five properties in Lucknow for Rs 1.46 crore between January and May 2005. Strangely, it sold them a few months later for Rs 1.36 crore, a time when land prices were skyrocketing. The Samajwadi Party is no newbie to this great game. It collected Rs 80.47 crore during 2006-07, but disclosed sources for only Rs 6.57 lakh of this amount.
The CPI parks its money in private sector banks. It has deposits of Rs 1.15 crore with HDFC Bank as on March 31, 2007. The party has shown income from donations and party funds of Rs 44.18 lakh during 2006-07, of which sources for only Rs 12.69 lakh have been disclosed; most donations coming from party office-bearers. Big brother CPI(M) has a bigger pot. It acknowledges collecting Rs 24.90 crore during 2006-07; a list of 10 donors has been disclosed for a total of Rs 11.24 lakh.
Lalu Prasad Yadav’s RJD had not filed its income tax return for 2007-08 till the first week of July this year, though the deadline was October 31, 2007. Having recently received the national party status from the Election Commission, the RJD collects money under three heads: donations, chunav kosh (election fund) and anudaan. The party has collected Rs 5.29 crore under these three heads in the last three financial years, with Rs 75 lakh mobilised as donations and Rs 1.41 crore as chunav kosh during 2005-06.
Such funding routes apart, sale of coupons remains a traditional favourite with parties like the Congress and NCP. The NCP, which had not filed its ITR for 2007-08 till first week of July (i.e. the date of reply), collected Rs 6.05 crore during 2005-06 from sale of coupons, besides Rs 50.76 lakh through donations. It collected Rs 24.70 crore under these two heads without disclosing the sources over the last three years.
On the other hand, despite being in and out of power in India’s richest state, Punjab, Shiromani Akali Dal has shown a meagre income of Rs 5.19 lakh for 2005-06. Similarly, Ram Vilas Paswan’s Lok Janshakti Party showed an income of Rs 78.49 lakh during 2006-07 from donations and sale of coupons.
Records show that over the last three financial years, the seven recognised national parties together collected over Rs 814 crore from donations and voluntary contributions. Of this, the 1,134 donors that the parties have named in their returns account for only Rs 87 crore. You can follow the money, but you won’t see it coming. At least not the overwhelmingly larger chunk.
Returns relief for parties
as reported by SAMANWAYA RAUTRAY, The TELEGRAPH, November 15 , 2008
New Delhi, Nov. 14: The Supreme Court today refused to take action against political parties that fail to file income-tax returns as mandated by law to claim exemptions on the contributions they receive.
“We don’t think it is our duty,” the court said.
The court was ruling on a petition filed by the NGO, Association of Democratic Reforms, which said it was mandatory for all parties to have their accounts audited and file their tax returns.
Under Section 13A of the Income Tax Act, 1961, parties that do not file returns and disclose contributions in excess of Rs 20,000 would not be entitled to tax relief.
Made up of professors and alumni from IIM Ahmedabad and the National
Institute of Design, the NGO alleged parties claimed tax exemptions without filing returns.
If parties maintain records of contributions, audit their accounts and file their returns, then “income from house property”, “income from other sources” and “income by way of voluntary contributions received from any person” are not included in the total taxable income for the previous year.
The NGO cited a Right to Information application to claim that not a single major party had filed its returns for 2006-07. Of the 21 most important parties, only the Congress, BJP, CPM, CPI, Samajwadi Party, ADMK, Telugu Desam and the Janata Dal (United) had filed returns for the three preceding years.
The petition alleged the Centre and the income tax department had “failed in their duty” as failure to furnish returns was a criminal offence.
“These… provisions have to be enforced” to prevent “ostentatious display” of money in elections, it added.
But the court asked why the petition had been filed just before polls and threw it out.