Cracking election funding

Corporate contribution remains a grey area

A recent study by a Delhi-based think tank, CMS, has revealed that more than half of the estimated spend of Rs 1.5 lakh crore on elections over the past five years has come from unaccounted sources.

A major grey area, according to the study, is corporate contribution to political parties which has seen a jump in each of the election years. Only a small part of it, however, makes it to the "known source" of funds.

What's more? There is little hope that the new Companies Act will help bring about transparency in corporate funding of political parties, given the ambiguity in some clauses. (REGULATIONS AT A GLANCE)

Under the new law, the limit for contribution by companies has been raised from five per cent to 7.5 per cent of the average net profit in the past three years but it comes with a rider. The earlier Act allowed companies to contribute for a political purpose to any person while the new Act is silent on contributions for a political purpose.

"This may lead to a view that a company may make contributions for a political purpose without any limit as long as it does not directly or indirectly result in a contribution to a particular political party," points out Aakanksha Joshi, associate partner, Economic Laws Practice, a corporate law firm.

However, to widen the net, privately-held companies are now required to disclose the amount contributed to a political party in their profit and loss statement. This was earlier restricted to listed companies.

Moreover, the penalty for contravention of provisions relating to political contribution has been raised from three times the amount of funding to five times, though the term for imprisonment of company officials in default has been reduced from three years to six months.

Tax benefits for the new "electoral structure" in the new Act has paved the way for large corporate houses to set up electoral trusts. Following a representation by industry body, the Confederation of Indian Industry, the government has allowed companies to deduct contributions to electoral trusts and political parties, from income computation.

Constitution law expert Subhash C Kashyap, however, feels that all efforts would be futile if election expenses in the country were not brought down.