A Bond of Secrecy: Democracy, Paid for in Darkness

Why in News?

• There has been a controversy surrounding electoral bonds in India that while most information about the funding process is public, the anonymity of the donor and recipient, as well as details about the bonds, remains undisclosed.
• The lack of transparency, specifically the non-disclosure of information, is contradictory to the principles of transparency and in potential violation of the Right to Information (RTI) Act.

Electoral Bonds, Workings and Eligibility

• Electoral Bonds (EBs)
  • The electoral bond scheme was launched by the Union government in 2018.
  • It is a bearer instrument, like a promissory note that can be bought by any Indian citizen or company incorporated in India.
  • The citizen or corporate can then donate the same to any eligible political party of his/her choice.
  • The bonds are like bank notes that are payable to the bearer on demand and are free of interest.
  • An individual or party is allowed to purchase these bonds digitally or through cheque.
• Working of Electoral Bonds
  • EBs are issued/purchased for any value, in multiples of Rs 1,000, Rs 10,000, Rs 1,00,000, Rs 10,00,000 and Rs 1,00,00,000.
  • The electoral bonds are available for purchase for 10 days at the beginning of every quarter.
  • EBs have a life of only 15 days during which it can be used for making donations to political parties.
  • SBI is the only bank authorised to sell these bonds.
• Eligibility
  • Only political parties registered under Section 29A of the Representation of the People Act, 1951 and which secured not less than 1% of votes polled in the last general election to the Lok Sabha or the Legislative Assembly of the State, are eligible to receive electoral bonds.
  • The bond can be encashed by an eligible political party only through a designated bank account with the authorized bank.
  • The political parties must disclose the amount to the Election Commission but the electoral bonds do not bear the name of the donor.

The Controversy Surrounding the Electoral Bonds

• Lack of Transparency and Against the Idea of Open Governance
  • Electoral bonds were introduced to provide a more legitimate and transparent means for political donations.
  • The central concern is the lack of transparency in the electoral bond system, particularly regarding the non-disclosure of information.
  • The lack of transparency is often criticised as being contrary to the principles of transparency and the Right to Information (RTI) Act.
  • Moreover, withholding information about political funding goes against the spirit of open governance.
• Reluctance of Political Parties to Being Brought into Purview of RTI Act
  • The consistent resistance of political parties to being brought under the purview of the RTI Act is questionable.
  • This resistance can be seen as undermining the commitment to transparency, as it implies that political parties are hesitant to disclose information that would be subject to public scrutiny.
• Suggests a Possible Collusion Between State and Political Parties
  • It is unclear as to why the State appears to collude with political parties in maintaining the lack of transparency, particularly through the grant of income tax exemption.
  • This raises concerns about the alignment of interests between the government and political parties in withholding information.
• The Ambiguous Stance of ECI
  • The Election Commission of India initially resisted electoral bonds but later there was a change in its stance without clear reasons.
  • The ambiguity in ECI’s stance is not transparent or readily understandable because ECI did not make its reasons public.
• Confusing Logic Behind Secret Transactions
  • There is merit in the argument that an electoral bond is an authorised instrument that serves as an alternative to cash (anonymous cash donations were capped at Rs 2,000).
  • However, there is a confusion and concern about the logic of maintaining secrecy in electoral bond transactions.
  • The rationale behind rewarding secret transactions with tax relief for both the donor and the beneficiary is questionable.
  • It highlights the contradiction between transparency and the electoral bond system.
• Loopholes Allowing Tax Benefits Without Full Disclosure of Funds Utilisation
  • EB transactions raise a legal question about whether tax laws permit tax exemption without requiring full disclosure of details regarding the recipient tax-exempt organisation and the donor claiming tax relief.
    • This highlights a concern about potential loopholes that allow for tax benefits without adequate transparency.
  • The general principle of granting tax exemption to organisations receiving donations ensures that the funds received are utilised for their stated purpose.
    • This principle is commonly applied to charitable organisations, but the similar standard for political parties that receive tax-exempt electoral bonds is not being followed.

The Supreme Court’s Stance on Electoral Bonds

• The Supreme Court raised inconvenient questions in past hearings related to electoral bonds and their transparency, merit, and intent.
• But, instead of making a definitive ruling on electoral bonds, the Supreme Court ordered the sealing of envelopes containing vital information.
• Despite expressing reservations and sealing crucial information, the Supreme Court did not take the step of staying or de-legitimising electoral bonds.
• This is a cautious approach, refraining from making a sweeping decision that could have a broader impact on the electoral bond system.

Ways Ahead to Address Concerns Associated with Electoral Bond System

• Periodic Proprietary Audits by CAG Appointed Firm
  • There should be a specific provision in relevant tax laws requiring periodic proprietary audits of party accounts.
  • A periodic audit should be conducted every five years by a firm appointed by the Comptroller and Auditor General (CAG).
  • If the audit reveals that a party has been unable to spend the tax-exempt income for the declared purpose, the party should be liable to pay income tax on the unutilised portion with interest.
  • This will enhance transparency in the utilisation of funds by political parties, aligning the provisions for political donations with those applicable to tax-exempt donations for other purposes.
• Set Expenditure Limit
  • There should be limits to expenditure incurred by political parties during elections.
  • For example, a party may be allowed to spend a certain percentage of the candidate's declared expenses, thereby automatically limiting party expenditure during elections.
• Mandate Political Parties to Utilise Received Funds on Elections
  • When income tax laws insist on full and honest disclosure, why should the electoral bond incentivise secrecy?
  • Political parties receiving tax-exempt electoral bonds should be obliged to spend the funds substantially for election purposes within a given period.
  • Failure to meet this obligation should result in losing the benefit of tax exemption.
  • This will serve as a measure to prevent political parties from accumulating tax-exempt funds without utilising them for their intended purposes.

Conclusion

• The preference to contribute to the cause of democracy anonymously challenges the core idea of democracy.
• There are countries in which people proudly and openly claim to provide donations to political parties like the Political Action Committees in the US.
• While the SC deliberates on the issue, it is time for Indian citizens to introspect as a society why those who provide for democratic cause want to conceal their contribution and why our political system supports this.

Q1) What are the features of the Representation of People Act, of 1951?

Representation Of People Act, 1951 Act contains provisions relating to qualifications and disqualifications for membership of Parliament and State Legislatures, notification of general elections and administrative machinery for the conduct of elections.

Q2) What is the ceiling on election expenditure for political parties in India?

The expenditure limit for candidates for Lok Sabha constituencies was increased from Rs 54 lakh-Rs 70 lakh (depending on states) to Rs 70 lakh-Rs 95 lakh, by the Election Commission of India (ECI).

Source: The Indian Express