Democracy in countries and democracy in political parties is linked

Dr. Dhiman Chowdhury :

Political parties run the government. Their financial accountability and transparency help to understand the state of accountability and transparency in the government and its machineries. Political parties have their objectives and goals which are set by dialogue with the citizens. They sit with media, civil societies, business communities and many others. So, they need funds. There are many sources of funds like subscriptions from members, public donations, income from some business ventures, and government. They need finance to carry on their legally recognised assignments. Parties carry on many activities, like dialogue with various stakeholders, electoral and campaign activities, organisational activities, office and logistic activities, and many more.
Rationale for financial statements
Parties must prepare annual reports including financial statements and audit reports because they receive donations from various sources including business communities, trade unions, trusts, government and public. Also the public need to know how parties are spending their money. Financial accountability is an important part of total accountability and transparency to the public. UK Electoral Commission website says “All political parties must keep financial records and submit annual statement of accounts to us. Publishing this data helps voters see the money that political parties receive and what they are spending. This is a vital part of delivering transparency in political finance in the UK, and in enhancing public confidence and trust in our democratic processes.” Financial statements are available for inspection by any person during normal office hours of Elections Ontario (AR-10 Political Party Financial Statements: Compliance Forms 2021 December). Party accounts are available in the Net in Ireland (standards in Public Office Commission, Dublin).
In UK, major political parties have their annual report available in the Internet (Political Parties Elections and Referendums Act 2000 u/s 46). These annual reports are prepared like in the corporate sector. These include report of the leader and deputy leader, Report of the chair of the party, report of the general secretary, national executive committees business board, policy committee, equalities committee, organization committee, complaints and disciplinary committee, audit and risk committee, objectives ( strategy and policy offer, voters being at the heart of everything, campaign strategy, digital data and technology, first class communications, election winning), financial statements (balance sheet, income and expenditure statement, cash flow statement), changes in equity together with detailed notes to the financial statements for major transactions. Financial statements of these businesses are prepared separately and consolidated with the party financial statements, Independent auditor’s report
Debates on public funding
Parties may lose independence if they receive funds from public sources particularly the government. Smaller and newer parties may find difficulties in raising funds. Taxpayers should not be forced to support parties financially which they did not approve. In the low income countries government has more other priorities than donating to political parties. But there is need for public funding. Government donation to parties may help free and fair political competition. This may also help parties’ independence from private donors. Party leaders keep regular contact with their constituencies and know their priorities, formulate party policy programs, paying bills for various logistics. Funding from legitimate sources can reduce corruption of party leaders. Disclosure of income and expenditures bring transparency and accountability in the parties. Financial statements, if made public disclose the legitimacy of their sources of income and expenditure. Government can at least subsidise parties’ cost of meeting, rooms, poster printing, can support party media, discount on public services (postage), and some tax incentives.
Funding sources
In the UK, the Labor party’s major income sources for 2021-22 include membership income £16m (36 per cent of total income), donations £10m (22 per cent), government grant £7m (16 per cent), commercial and investment income £3m (7 per cent) (Source: annual report). The Conservative Party discloses similar data in their financial statements. The US Federal Electoral Commission accepted public funding program in 1976. In US and France Presidential candidates receiving 5 per cent of the votes obtain some reimbursements. The UN, World Bank, the Council of Europe, and Transparency International have provisions for detailed disclosure by parties and candidates of assets, income, expenditure, large private donations, donations from corporate, foreign, and trade unions.
Conditions of donations
There are permissible donors and must satisfy some conditions. An individual donating more than £7500 must report to the party the source of his donation (Political Parties Elections and Referendums Act 2000, UK, Section 54A). The amount of donation shall not exceed a reasonable amount necessary for the purpose. A return of donation (donation report) shall be produced. The Electoral commission UK publishes donation income and loans of political parties four times a year: March, June, September and December. These include donation income and loans by parties, the amount, who made the donation (name, status such as individual, public fund, trade union, companies incorporated and unincorporated, and trust. In other European countries donation more than Euro 2500 must be disclosed. In Germany parties must have at least 5 per cent of MPs to qualify for government donation. Parties must disclose sources of funds in their website or to electoral entities or to oversight bodies who will in turn make these publicly available (European Parliament 2021, Financing of Political Structures in EU Member States). The ruling party gets the most of the donation around the world.
Commercial and investment income and income tax
A political party may carry on some businesses to reduce its dependence on party members and the government. The labor Party of UK has Properties limited, a property management and investment business. The party also has a property trustee. Their total income is £3m which is 6.7 per cent of total income in 2021.Corporate income tax on its investment income and capital gain tax on sale of investments are relevant for the parties. It paid corporate income tax £4m.
Electoral Acts
Electoral Acts of developed countries have financial accounts disclosure requirements for political parties which are similar to corporate sector. These provide for the disclosure of accounts by political parties according to the guidelines of the electoral commission. Accounts include balance sheet, income statement, and cash flow statement. The accounts will be furnished to the commission (not mentioned about the disclosure for the public). The Ireland commission however makes these accounts public (available from there website). The commission reviews these reports and makes these reviews public. Reviews include which parties complied and which not and what not. Non-compliance was common regarding income recognition particularly membership fees and subscriptions. Non-compliant parties have been found to be not receiving donation from the government.
India, Pakistan, Bangladesh, Nigeria
Association of Democratic reforms or ADR (National Election Watch) in India publishes financial summary, balance sheet, income statement, and donations for all Indian national political parties. In 2021-22, BJP had Rs17754 million donation out of total income of Rs19171m or 93 per cent. Election expenditure was Rs6458m out of total Rs8548 or 76 per cent. Trinamool Congress publishes full set of financial statements including notes for the public. Identification of itsmajority donors however, is not available. Many regional parties are not submitting their annual financial report (ADR). Income tax Act 1961 provision13A requires political parties to file income tax return although some incomes are exempt from tax. Institute of Chartered Accountants of India (ICAI) has given guidelines on financial statements which are the same as the corporate sector. At present identification of donors giving less than Rs 20000 is not required.
In Bangladesh, political parties submit their annual income and expenditure to the Election Commission. The commission has guidelines on party income and expenditure disclosures. But the commission does not say anything on their annual reports and their access to public. Therefore, none of the parties have their annual reports available to the public. Even the Election Commission also does not disclose the audited financial statements of the parties. They publish only the total expenditure of the parties. Classified income and expenditure is not available. Awami League and BNP, two major parties submitted their audited financial statements to the Election Commission but the commission does not make these public. Donation income and loan the two major information is not available neither from the website of the political parties nor from that of the Election Commission.
In Pakistan and Nigeria also there are rules for political parties to submit their detailed accounts to the election commission (Election Commission of Pakistan and Independent National Electoral Commission of Nigeria). But the commissions do not publish these accounts for the public. There may be selective access of some elites (because of Rights to Information Act) to these accounts but unless these are published in their website, public do not have access to these records.
Rules are not enough
The Political Party Registration Rules 2008 and the Representation of the People Ordinance 2009 of Bangladesh have rules regarding disclosure of political funding, candidates’ all financial matters including compliance of tax matters. But furnishing the detailed information to the Election Commission is not enough. Political parties must publicly disclose annual reports in their website like in the functioning democracies. Annual reports shall contain all financial statements, notes to the financial statements explaining all accounts in the financial statements, and disclosure of fund from various parties. Submitting audited financial statements to the Election Commission is only a small part of annual reports, accountability and transparency. Annual reports are in fact the summary of a party’s 365 days’ activities: goals and objectives, missions and visions, various committees, reports of party leaders, audit reports, governance, financial statements, comparative figures of performance, and many nonfinancial performance measures. If the electoral commissions do not publish party financial statements in their websites, their use remains extremely limited particularly in low income countries.
Democracy in countries and democracy in political parties is linked
The European countries, Canada, and also India where political party financial statements and various sources of income and classified expenditures are available for the public and these countries have good records of functioning democracy and market competitiveness. In Bangladesh, Pakistan and Nigeria with lower democracy and competitiveness ranking (World Economic Forum, World Bank), political party financial statements and classified income and expenditures are not publicly available either in the website of the parties or in the electoral commission or any independent oversight body.

(The writer is Professor of Accounting, Department of Accounting & Information Systems,
University of Dhaka).