Vdis Exploited For Poll Funds

VDIS 97 proved to be the most opportune means for legitimating poll funding during the forthcoming Lok Sabha elections, tax professionals say.

Political parties were originally calculating their election fund requirements on the basis of the existing ceiling of Rs 4 lakh per candidate per parliamentary constituency. That meant that each of the national parties could legally spend about Rs 200 crore each (assuming each of them fielded 500 candidates each) while the regional parties could spend about Rs 2 crore each (assuming they fielded 50 candidates each)

However, on December 30, Chief Election Commissioner M S Gill raised the ceiling from Rs 4 lakh to Rs 15 lakh for parliamentary constituencies and Rs 6 lakh for assembly seats. This meant each of the political parties could spend almost four times the sum originally envisaged as legitimate poll expense.

 

The overall permitted limits thus went up straight to about Rs 6000 crores, as against Rs 1500 crores. However, since the election commission had made the announcement on the eve of elections, political parties, donors and aspirants faced the problem that they could not legitimately utilise this additional limit, unless they came out with a method to suddenly show the additional income in their book of accounts. Hence, the rush outside VDIs counters.

``The VDIs provided individual donors, political aspirants and political parties a legitimate means of increasing their incomes overnight, without attracting the attention of tax officials, the sources said.

However since the income was yet to come in, aspirant donors and parties paid whatever sum they had in hand as tax to create legitimate incomes. In one case, a declarant had just Rs 30 crores in cash. He remitted this as tax, laundering an anticipated poll donation of Rs 100 crore overnight.

During an election, individuals and corporates are the major source for funding expenses. Though company law provides for companies to make political donations, few corporates make use of these provisions. This is also true of the individual, who rarely make political donations by cheque. This is because as a rule, political donations are made only in black. The VDIs permitted the conversion of black money into white with no questions asked, tax consultants said.

Political parties and candidates have started paying much of attention to poll expense after the 1996 elections, when the Election Commission posted tax officials at polling booths as observers to ensure that candidates did not exceed the prescribed ceiling.

According to sources, political donations flow into a central kitty of the party, from where they are distributed to candidates as poll expense. The Congress party for instance is proposing to distribute the donations received by it to candidates in three tranches of Rs 5 lakh each. The Congress party was reportedly short of funds till recently. But after the induction of Sonia Gandhi into active politics, sources said its coffers have been overflowing.