Monday, 6 February 2017

Electoral Bonds- Will it achieve its goals?

A “Cashless Economy” is an excellent way to wipe off or at least reduce the scourge of black money, fake money, terrorist money and kickbacks. The intention and action of the Government to do so through the biggest ever demonetization move was laudable. Yes, it had some inconveniences but little impact on GDP growth.  This will eventually lead to India becoming a “Less cash dependent economy” if not a completely “cashless economy”. Countries like Sweden boast of 93% non-cash transaction but Sweden does have several advantages such as limited population, high per capita income, advanced infrastructure etc.  The effort to lower or minimize India’s cash dependence is possible only through tightening of Income Tax norms and related rules.  The current budget proposals include reduction of cash expenditure to Rs. 10,000 from the existing Rs.20,000, introduction of a new provision that does not permit any cash payment exceeding Rs.3,00,000 and political contributions in cash mode not to exceed Rs.2,000, electoral funding etc,.
In order to establish transparency in electoral funding the FM has proposed the following in the current budget:
a) In accordance with the suggestion made by the Election Commission, the maximum amount of cash donation that a political party can receive will be Rs 2000/- from one person.
b) Political parties will be entitled to receive donations by cheque or digital mode from their donors.
c) As an additional step, an amendment is being proposed to the Reserve Bank of India Act to enable the issuance of electoral bonds in accordance with a scheme that the Government of India would frame in this regard. Under this scheme, a donor could purchase bonds from authorised banks against cheque and digital payments only. They shall be redeemable only in the designated account of a registered political party.  These bonds will be redeemable within the prescribed time limit from issuance of bond. 
d) Every political party would have to file its return within the time prescribed in accordance with the provisions of the Income-tax Act.  
The limit on accepting contribution in cash has been reduced from Rs. 20,000 to Rs. 2,000 in the current budget proposal. “Charity begins at home” – The government could have proposed a complete ban on any cash contribution to political parties and could have chosen to enforce payments through the digital mode. It may be argued that not everyone has access to digital modes – however, in this case it must be realized that people with no digital access viz the lower strata of society are not expected to contribute to political parties either – so a complete ban on cash contributions to political parties should definitely have been the norm. Considering that the efforts and intention of the Government is to move towards a digital India for most of the transactions, cash contributions especially to political parties should be completely scrapped. If the ruling dispensation are themselves shown to be slow to accept a cashless state, how did they expect the common man to embrace a cashless system in three hours – the amount of time it took the government to scrap 86% of the country’s currency? Thanks to a tough managed show, on November 8th, “at the stroke of the midnight hour, when the world slept, India’s quintessential “common man” awoke to the realities of cashless life and resultant chaos”. Given what the common man has gone through in the last couple of months post demonetization, the mere reduction in cash limits for political contributions, certainly reeks of double standards.
Coming to the other proposal to fund political parties, namely the issue of Electoral bonds – per the FM, it is an “effort to cleanse the system of political funding in India”. 
Under said proposal, “An amendment is being proposed to the Reserve Bank of India Act to enable the issuance of electoral bonds in accordance with a scheme that the Government of India would frame in this regard.  Under this scheme, a donor could purchase bonds from authorised banks against cheque and digital payments only.  They shall be redeemable only in the designated account of a registered political party.  These bonds will be redeemable within the prescribed time limit from issuance of bond.  d) Every political party would have to file its return within the time prescribed in accordance with the provision of the Income-tax Act.”  
This new provision that enables a donor to purchase bonds from authorized bank through the banking channel requires further analysis. The intention of the Government seems to be to receive the money through banking channel in exchange of a Bond which could be redeemed on a later date. Primarily the money comes into the system to the RBI and Government is free to use the said funds while redemption takes place on a later date. Secondly, though it is a bearer bond, it can be redeemed to the designated account of a political party and not to any individual thereby bringing control into the system.
However, we must look at the precedent provided by the just concluded exercise of demonetization. Reports suggest that a vast number of Jan Dhan accounts were used to convert black money into white – with or without the connivance of account holders. A similar situation cannot be ruled out in the case of electoral bonds. Who is to prevent the use of one individual account by another? While one may argue ad nauseum about Income tax source rules and the Benaami Act, it is a well-known and documented fact that those hurdles may be circumvented.
The income of a political party is exempt. Political parties will continue to be exempt from paying income-tax subject to the fulfilment of the conditions laid down regarding contribution acceptance and income tax filing.  The intent is definitely commendable. Whether it will achieve the desired result or merely pave the way for creation of another avenue for black money remains to be seen. More regulations may be required to oversee political funding and ensure a cleaner system. The onus for checking and investigating transactions, of course, falls on the Income Tax Department and mechanisms must come into force to provide the freehand for the Tax authorities to proceed per law and promote a clean system of governance and implementation. There must be an enhanced relationship and a system based on trust and cooperation to achieve compliance with rules. It goes without saying that checking every transaction and viewing all statements with suspicion is an extremely weary exercise. Systems must be such that they flag wrong doing that warrants investigation rather than implement a wholesale check which would inconvenience all concerned not to mention add to overall governance costs. One would rather not have to see investigators turn up at party offices a la James Bond quoting his famous line – “The name is Bond”  - in this case though “electoral bond”.


G. Karthikeyan
(The author is a Coimbatore-based chartered accountant and can be reached at karthikeyan.auditor@gmail.com )


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