Nearly 650 of the 820 registered political parties do not contest elections. Many of them are suspected to have been floated to evade tax.
Rashtriya Vikas Party (RVP), a registered political party with the Election Commission (EC), runs its operations from a basement office at its president M.P. Sharma’s house in Faridabad. Parmarth Party, another such outfit run by one Sunil Tiwari, has its registered office in Jawahar Nagar in north Delhi.
You may have never heard of them but recently Sharma declared Rs 3 crore in contributions to his party while Tiwari declared contributions of more than Rs 1.10 crore. The EC now fears they may only be a part of hundreds of other parties which exist only on paper and have been floated simply to collect huge funds and evade taxes.
Out Of the 820 registered political parties with the EC, 650 do not participate in any election. An alarmed EC and the Income Tax (IT) Department have urged the Prime Minister’s Office (PMO) to review a 2003 amendment in the Representation of the People Act (RPA) which allowed political parties to accept any amount of contribution and exempted it from income tax.
The contributors are an interesting lot too. A company-Zavari and Company Exports, Ahmedabad- contributed Rs 2 crore in three transactions through ICICI Bank cheques to the RVP. The Parmarth Party received more than Rs 85 lakh through HDFC Bank cheques from a Sarin family based in south Delhi.
Compare these contributions to those declared by some bigger parties like CPI, NCPand BJD ahead of the 2004 gen-eral elections. The CPI declared total receipts of Rs 38,81,961 prior to the elections. Similarly, the NCP declared Rs 31 lakh while the BJD declared around Rs 78 lakh.
The RVP which contested the Aligarh Lok Sabha seat and some assembly seats in Uttar Pradesh and Punjab seems to be doing extremely well in comparison. “We require funds in excess of Rs 200 crore to run a party of our dreams.
We are fighting the second war of independence and this time it is against the enemy within-corruption, population density and caste hatred,” says Sharma. He would be pleased to know that even the ruling Congress declared only Rs 91 crore as receipts during the same period. The BJP had Rs 38 crore while the BSP had Rs 33 crore. Sharma with such skill at fund collection can soon overtake these national parties.
The real problem is not fund collection but tax evasion. In 2003, the Atal Behari Vajpayee government visualised a scenario wherein political parties would receive funds through cheques. This was expected to bring some transparency in the otherwise chaotic fund collection drives of parties. To encourage honest contributions, a tax exemption sop similar to that available to donations for social purposes was made through an amendment.
This amendment is now a constant source of worry for the EC which in its two letters dated March 3 and October 5, 2006 to the PMO said: “The commission is worried that such financial incentive in the form of tax exemption is susceptible to gross misuse, especially considering the easy norms for registration as a political party. This may lead to a tax evasion racket.”
And it has. The methodology of misuse is simple. The registered political party has to deposit a list of contributors to the EC which endorses it and the list is then sent to the IT Department. The contributors get 100 per cent tax exemption under Section 80GGB of the Income Tax Act 1961.
Similarly, Section 13A gives blanket exemption to political parties from paying taxes on money received from any source, rent, real estate or charity. Since it’s all legal, political parties like Parmarth also accept donations in cash and give receipts to donors who can then claim tax benefits. “No one would have realised at the time that it could lead to such flagrant misuse,” says Satyavrat Chaturvedi, Congress spokesman.
There is also a suspicion that some companies like Zavari and individuals like Sarin may actually be behind these parties. They can cleverly create a tax-free account in the name of a registered party and then keep diverting taxable funds. By donating in crores they may also be creating a fund for future use. There is a list of contributors to various political parties with INDIA TODAY.
Some of these have a dubious past and some are under investigation of the IT Department for serious tax fraud. For instance, Zavari, in the past, has been investigated for several tax frauds and has been linked to the cricket betting scandal. But its contribution to the RVP is above legal scrutiny because of the amendment. Some of the little known political outfits have raised more funds than parties like the CPI and NCP.
A senior income tax official who had been behind the Finance Ministry’s objections to the amendment in 2003 says: “The logic for exemption to political parties was that if a similar exemption could be granted to social bodies, then why not to them. It has obviously not worked.”
The operational difference between the two exemptions may be the reason. If a trust or an NGO wants exemption under 80GGA it has to apply to the IT Department, produce loads of documents and then come back every year with its accounts and get the exemption reviewed. The exemption can be withdrawn at any time under suspicion of deliberate evasion. But no such rule exists for political parties.
One of the things the EC points out is the ease with which political parties can be registered. Till 1989, the commission controlled and regulated the registration of political parties but Section 29A introduced that year allowed any and everyone to form a political party. Till then every election saw many independent candidates.
This has now given way to many regional parties. While 173 of them contest elections, others are there because all that is needed for registration is affidavits from 100 voters, a party constitution and a Rs 10,000 deposit. Nothing for someone trying to evade taxes worth crores of rupees. Ironically, a party once registered cannot be deregistered.
The EC in its letter to the PMO proposes a reform in the RPA that “tax exemption should not be available to all political parties without any reference to their standing participation in elections and popular support”. It is also pushing for introduction of a process of deregistering of political parties.
The EC’s letter may have put the PMO in a quandary over whether to withdraw the amendment and limit the freedom promised under Fundamental Rights or suffer huge losses to the treasury. A choice from which there is no getting away Source