Thursday, July 09, 2009

On tax exemption to corporates funding parties for elections

Among the many proposals by the Union Finance Minister, Pranab Mukherjee, in his budget for 2009-10, one that causes some concern is that to grant 100 per cent exemption from tax for contributions by corporate houses to the election fund of political parties. Well. It may sound good on the face of it.

It is a known fact that corporates and business houses donate money to political parties. It is also a fact that in many cases, such donations, is not shown on the records by the parties as well as the donor. It is also a known fact that these donations are given in exchange for favours either taken already or expected from the party as and when it comes to power. It is also a fact that such favours lead to scandals in some instances. It is also a fact that in most cases, where the scandal breaks out, the drama prolongs for a while before it is closed either for want of evidence or when the investigation fails to find the evidence even where it is obvious.

Now, the Left parties have been the only ones from among the political groups that have criticized Mukherjee’s proposals. And this should lead us to conclude that the proposal will sail through and become part of the legal scheme during the current finance year. It is also certain that this proposal will come to stay in our political democracy for a long time to come.

Having said this, I must hasten to add that the basis for the criticism by the Left parties too is rather flippant. CPI(M) leader, Sitaram Yechury and CPI’s Gurudas Dasgupta have raised it that the proposal will only help the parties that speak up for the corporates and the business houses and that none of the corporates will even think of donating money to the Left. Their objection is that corporate funding will work against the interests of the working class.

Even if one presumes that the Left’s criticism is valid, it is difficult to agree with them on the contention that the Left does not reflect the corporate interests at any time. The fact is that the CPI(M)-led Left Front had done so much favouring the corporates in West Bengal – Singur and Nandigram being straight examples – and if Yechury’s point is to be taken as correct, then it will be fair enough to also presume that the corporates had funded the Left in recent times.

To elaborate this further, I will have to presume that the Tatas gave some money to the CPI(M) in return for the Singur facility and that the Salem group, based in Indonesia had given money to the party in return for Nandigram. And this could have happened because the party facilitated the setting up of the Nano car factory in Singur and the SEZ in Nandigram in return for the money they got. I am sure Yechury and his comrades will detest me for saying this. Let me also add that I am not sure if the party took money from Tata and the Salem group. I am only presuming this and this presumption is based on accepting Yechury’s argument for a moment.

Well. I still have reasons to argue that Finance Minister Mukherjee’s proposal in Parliament is dangerous. And let me place one of the reasons for that.

It is a plain fact that corporates have been contributing for the election funds of political parties. And that this has been happening since our first general elections. Recall the Mundhra scam in the fifties, exposed by Feroze Gandhi. But then, such funds were not recorded in the annual statements of the corporates. But parties have been showing such receipts without, however, stating the real donor’s identity.

The trick is like this: The various parties show such income as donations, collected in the hundies placed in the party offices or as donations received from public places. Political parties, registered with the Election Commission, in fact, have to submit a statement, every year, to the Commission, showing their annual receipts and expenditure and these have to be certified by an auditor. It is mandatory to keep their registration alive.

The only problem is that the Election Commission has no jurisdiction to examine the source of such receipts. In any case, there is no way that anyone can monitor the ``collections’’ every day. For instance, where a party gets Rs. 5 Crores from a corporate house in exchange for a license granted by its government, it simply shows the amount as received as donation by its workers and well wishers dropped into the collection boxes placed in its offices. The money, thus, is accounted.

The budget proposal, however, makes it possible for the corporate house to donate a certain amount to a certain political party (in return for a favour) and show that in their books and claim 100 exemption for that amount from their tax commitment. This, however, will mean that the party too showing the income as donation from such and such corporate house rather than fudge the accounts and make a false statement that the money came from the faceless workers and well wishers.

But then, it also opens up the possibility for the corporates to set up their own parties, merely on paper, donate money to those imaginary parties and ensure that such monies are exempted from tax. The parties, then, are at liberty to use that money for purposes of the corporate house. For instance, the party can create a fund for lobbying and use it to bribe ministers just like Enron, the US corporation did with our own politicos. Such lobbying can take the form of ``exposure’’ trips to the MPs, Ministers and their family members, to places within and outside the country; it could be done in many other ways too.

The point is that the proposal, as mooted by the Finance Minister, will not only legalise corrupt means but will also help them save on taxes. In other words, in the present situation, the corporates cannot save on taxes for the money they spend on political lobbying. If the proposal is passed by Parliament, we will enable the corporates to pay less taxes than they do now. The other fallout will be the mushrooming of political parties because corporates, big and small, will find this as a means to lessen their tax commitment and also claim to be playing a role in strengthening political democracy!


Anonymous Anonymous said...

This proposal by Finance Minister in Budget has rendered a very useful service to the people of this nation not so much to let them know that corporate and business houses donate money to the political parties of 'democratic' India, for they know that bourgeoise democracy is after all a democracy to manage and moderate the affairs of the ruling class and its conflict with the working masses.
But this proposal by Finance Minister has rendered a very useful service in exposing to people that (pseudo) intellectuals like you is forced to 'talk' about this issue in platform like blog and newspapers for otherwise it will go deliberately unacknowledged.
Your contempt for organized party politics is too well known. In the name of critiquing the Indian left parties, you end up as confused anarchist. Your invocation of Trotsky is a folly. Your reading of Nandigram and Singur is faulty.

9:28 PM  
Anonymous Subbu said...

Rightly said sir. But I guess the government should come up with some sort of regulations that corporates can fund only recognised national and regional parties. That should prevent some leakage.

But again, in the current scenario also, any corporate can setup a dummy party and claim donations to it were from cadre collection.

The clincher is the tax exemption which in a way will tempt corporates to pay money transparently so we the people will know where exactly each party's policy is coming from. The parties will not be able to claim that they are doing what they are doing in "public interest" or for "development".

So the tax exemption may be a good thing afterall?

12:06 AM  

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