Electoral trust scheme

Context:

For the first time, an electoral trust (under Electoral Trust Scheme, 2013) has declared donation through electoral bonds and hasn’t revealed the names of the political parties that received the money, citing anonymity guaranteed under the electoral bond scheme.

About the Electoral Trust Scheme:

● Non- Profit Organisation:- It is a non-profit organization formed in India for orderly receiving of the contributions from any person.

● Electoral Trusts are relatively new in India and are part of the ever-growing electoral restructurings in the country.

● It notified by the Central Board of Direct Taxes (CBDT).

o The provisions related to the electoral trust are under Income-tax Act, 1961 and Income tax rules-1962.

● Objective: It lays down a procedure for grant of approval to an electoral trust which will receive voluntary contributions and distribute the same to the political parties.

● A political party registered under section 29A of the Representation of the People Act, 1951 shall be an eligible political party and an electoral trust shall distribute funds only to the eligible political parties.

Importance of the Scheme:

● Transparency:-Electoral Trusts are designed to bring in more transparency in the funds provided by corporate entities to the political parties for their election related expenses.

● The Election Commission had also circulated guidelines for submission of contribution reports of electoral trusts to submit an annual report containing details of contributions received by the electoral trusts and disbursed by them to political parties in the interest of transparency.

Main Concern related to scheme:

● Donation through Electoral Bond:- Electoral trusts start adopting this precedent of donating through bonds, which do not permit disclosure norms and discourage transparency rules/laws then it is like going back in time before the Electoral Trusts Scheme, 2013 was incorporated.

● Unfair Practice:- it will be a unfair practices i.e. total anonymity, unchecked and unlimited funding, free flow of black money circulation, corruption, foreign funding, corporate donations and related conflict of interest etc.

● Against it’s objective:- Such a practice completely negates the very purpose behind the inception of the Electoral Trusts Scheme, 2013 and Rule 17CA of the I.T Rules, 1962.

About Electoral Bond:

▪ Electoral Bond is a financial instrument for making donations to political parties.

▪ The bonds are issued in multiples of Rs. 1,000, Rs. 10,000, Rs. 1 lakh, Rs. 10 lakh and Rs. 1 crore without any maximum limit.

▪ State Bank of India is authorised to issue and encash these bonds, which are valid for fifteen days from the date of issuance.

▪ These bonds are redeemable in the designated account of a registered political party.

▪ The bonds are available for purchase by any person (who is a citizen of India or incorporated or established in India) for a period of ten days each in the months of January, April, July and October as may be specified by the Central Government.

o A person being an individual can buy bonds, either singly or jointly with other individuals.

o Donor’s name is not mentioned on the bond.

Benefits of Electoral Bonds:

● More Transparency: It helps the political parties to operate in a more transparent manner with the election commission, regulatory authorities and the general public at large.

● Ensures Accountability: Donations through Electoral Bonds will only be credited in the party bank account disclosed with the ECI. As encashment of all the donations are through banking channels, every political party shall be obliged to explain how the entire sum of money received has been expended.

● Discouraging Cash: The Purchase will be possible only through a limited number of notified banks and that too through cheque and digital payments. Cash will not be encouraged.

● Maintains Anonymity: The individuals, groups of individuals, NGOs, religious and other trusts are permitted to donate via electoral bonds without disclosing their details. Therefore, the identity of the donor is being preserved.

Challenges for Electoral Bonds:

● Hindering Right to Know: Voters will not know which individual, company, or organisation has funded which party, and to what extent. Before the introduction of electoral bonds, political parties had to disclose details of all its donors, who have donated more than Rs 20,000. The change infringes the citizen’s ‘Right to Know’ and makes the political class even more unaccountable.

● Shallow Anonymity: Anonymity does not apply to the government of the day, which can always access the donor details by demanding the data from the State Bank of India (SBI). This implies that the only people in the dark about the source of these donations are the taxpayers.

● Unauthorized Donations: In a situation where the contribution received through electoral bonds are not reported, on perusal of the contribution report of political parties, it cannot be ascertained whether the political party has taken any donation in violation of provision under Section 29B of the RPA, 1951 which prohibits the political parties from taking donations from government companies and foreign sources.

● Leading to Crony-Capitalism: It could become a convenient channel for businesses to round-trip their cash parked in tax havens to political parties for a favour or advantage granted in return for something. Anonymous funding might lead to infusion of black money.

● Loopholes: Corporate Entities may not enjoy the benefit of transparency as they might have to disclose the amount donated to the Registrar of Companies; Electoral bonds eliminate the 7.5% cap on company donations which means even loss making companies can make unlimited donations etc.

Government’s arguments for the Electoral Bonds:

● Limits the use of cash in political funding- as earlier, massive amounts of political donations were being made in cash, by individuals/corporates, using illicit means of funding and identity of the donors was not known. Hence, the ‘system’ was wholly opaque and ensured complete anonymity.

● Curbs black money- due to the following reasons-

o Payments made for the issuance of the electoral bonds are accepted only by means of a demand draft, cheque or through the Electronic Clearing System or direct debit to the buyers’ account”. Hence, no black money can be used for the purchase of these bonds.

o Buyers of these bonds must comply with KYC requirements, and the beneficiary political party has to disclose the receipt of this money and must account for the same.

o Limiting the time for which the bond is valid ensures that the bonds do not become a parallel currency.

● Protects donor from political victimization- as non-disclosure of the identity of the donor is the core objective of the scheme. Further, the records of the purchaser are always available in the banking channel and may be retrieved as and when required by enforcement agencies.

● Has sufficient safeguards- such as donations through bonds received from a domestic company having a majority stake is permitted, subject to its compliance with KYC norms and FEMA guidelines.

● Eliminate fraudulent political parties- which are formed on pretext of tax evasion, as there is a stringent clause of eligibility for the political parties in the scheme.

Way Forward:

● Adopt practice of complete digital transactions.

● Donations above a certain limit be made public to break the corporate-politico nexus.

● Political parties should be brought under the ambit of RTI.

● Establish a national electoral fund where donors contribute and funds are distributed among different parties.