July 09, 2009

A competition to charitable organizations

One of the proposals that went unnoticed in this year’s budget was “Donations to electoral trusts to be allowed as a 100 percent deduction in the computation of the income of the donor.”

Today we need lot more emphasis on social development. While many NGOs have to fight hard to retain their 80G (50% tax deduction) status, this proposal gives a much more coveted status to electoral trusts – that of 100% tax deduction for the donor. There are a handful of charitable trusts that enjoy this status.


The proposal says that political parties can set up electoral trusts that can receive funds/ donations. The donors can claim full exemption for the amount donated and the electoral trusts can spend the money as per the guiding rules – all accounted for!

The Finance Minister suggested a valid reason to do so in his budget speech – saying that it would bring greater transparency in electoral funding. It seems logical, but also raises a question – why would a political party propose this? It is a known fact that there is a lot of cash that moves around during elections. So, why would one want to start accounting for their own money movement?

It may seem like the ruling party is running short on donations/ funding while its political opponents are making effective use of the money power. But in such a case, the other parties would already have created uproar about this. In the absence of any worthwhile comments/ discussion on this proposal, it indicates that it has to be beneficial to all parties.



The intent as mentioned in the proposal would mean that all donors would insist on accounting the money and claim the tax deduction. This may seem to suggest that donors would stop donating ‘black’ money (cash) and actually give out only accounted money to the parties. And once the money comes to the electoral trust accounts, all expenses will have to be declared. Maybe a small percentage of donors may do that – but in my opinion, the real motivation is different.

A probable scenario that may happen is that the current funding structure will not change much – on the contrary, this tool may get used to get more donors to shell out money. And, this new segment of donors will actually be the tax payers!

So, you would now end up funding the election campaign of your political parties. Get ready to shell out stuff – the silver lining is that you can reduce your income by the entire amount (the income that never came to you) and pay lower taxes.

It is official now – your politician and charity will compete for your money and based on the tax saving focus that all of us have – we know who will win… And, even if the party decides to put that money in social development projects, it will add to the party’s achievements.

On the positive side, it also has benefits for the common man. This reduces the political party's dependency on special interest money or lobbying and they can ideally focus on the right issues. Also, in many countries, where this is in practice, the poll turnout has actually gone up significantly!

Depending on how the public reacts to it and how our politicians make use of this opportunity, it may be a good turning point in Indian electoral reforms.

As of now, all I can say is that ‘What an idea, Sirji’
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