08/07/2017 Editorial Simplified 0 comment

Political Funding | Business Standard

The laws relating to electoral and political funding have gained traction of late. Let us look at the regulatory space regarding the funding of political activities and how they compare to other common law jurisdictions of the UK and the US.

Political Funding in INDIA

Political Funding | Contributions to political parties

  • The laws that govern electoral funding in India are the Representation of People Act 1951(RP Act), Conduct of Election Rules 1961, Companies Act 2013 and Foreign Contribution (Regulation) Act 2010 (FCRA).
  • There are no limits on contributions made by individuals under the RP Act.
  • Under the Companies Act, companies are allowed to contribute subject to certain requirements: (1) the company must be a non­government company; (2) it has to be over three years old and the contribution cannot be more than 7.5 per cent of the aggregate net profit in the past three years; (3) the contribution must be approved by a board resolution.
  • ‘Foreign contribution’ is not allowed by virtue of Section 3 of the FCRA.
  • The Finance Act 2016 permitted foreign companies allowed to operate in India to contribute.
  • Contributors are entitled to claim tax deductions under Section 80GGC and Section 80GGB of the Income­Tax Act 1961.

Political Funding | Disclosure requirements

  • Political parties must report all contributions above Rs 20,000 received from any individual or company to the EC.
  • Under the Companies Act 2013, a company must detail the total amount of contribution and the name of the party in its P&L account.
  • In 2013, the EC framed a scheme for contributions to electoral trust companies, making them liable to disclosures in their Annual Reports.

Political Funding | Penalties for violations

  • For political parties, failure to comply with regulations may lead to loss of income tax exemptions.
  • For companies there may be loss of tax exemptions and fines that may extend to five times of contribution and imprisonment of up to six months for directors.

Political Funding in UNITED KINGDOM

Political Funding | Contributions to political parties

  • The rules governing electoral funding in the UK are primarily found under the Representation of People Act 1983 and Political Parties, Elections and Referendums Act, 2000.
  • No restriction on political contributions made by individuals or companies that have obtained prior shareholder approval.
  • No restriction on contributions for companies with partial government ownership or firms undertaking.
  • However, contributions above £200 may be received only from ‘permissible donors’.
  • There are restrictions on anonymous donations above £500.
  • Foreign contributions are not allowed under UK law.

Political Funding | Disclosure requirements

  • Registered political parties must maintain accounts of all donations on a quarterly basis.
  • Parties must detail the names and addresses of donors contributing over £7,500 per year.
  • Compulsory audits for parties with contributions over £250,000 in any financial year.
  • All reported information is made available on the website of the Electoral Commission.

Political Funding | Penalties for violations

Fines, forfeiture of contribution amounts and imprisonment (eg. Up to one year for making of a false statement to an auditor).

Political Funding in UNITED STATES

Political Funding | Contribution to parties

Individuals

  • US election activity is governed by the Federal Election Campaign Act 1971 and the Federal Election Commission (FEC).
  • No limits are prescribed on individual expenditures (Buckley v Valeo 1976 & McCutcheon v FEC 2014).
  • Independent expenditures by corporates, associations and labour unions are now permitted (vide Citizens United v FEC 2010, which followed the rationale laid down in Buckley) on grounds of free speech.
  • There is a ban on direct corporate contributions and limits on individual contributions to a single candidate or a Political Action Committee (PAC).

Political Funding | Disclosure requirements

  • The Federal Election Campaign Act 1971 (FECA) mandates the disclosure of all donations to candidates, parties’ committees and PACs.
  • The appointment of a treasurer is mandatory for each party (Section 432 of FECA) and details of all contributions to be sent to the treasurer within prescribed timeframes – the treasurer must file a report of such contributions with FEC.
  • There are reporting requirements for various types of committees – any committee receiving total contributions of over $10,000 per annum must report all contributions over $200 per year.
  • Contributions, of $1,000 and above, received within 20 days of an election must be notified to the FEC within 48 hours.
  • All candidates, party committees and PACs must submit reportable data to the FEC for maintenance of a public database.

Political Funding | Penalties for violations

Violation of regulations may lead to a Matter Under Review or a FEC enforcement case and/or fines under FECA’s Administrative Fine Program

Raj Malhotra IAS Study Group.