Political parties bank accounts get income tax exemption

KARACHI: All political parties will get full exemption from income tax as their deposits in bank accounts will not be taxed in the fiscal year of 2017/18 – a major financial relief for them in the upcoming election year.

Through Finance Bill 2017, a new clause 143 has been inserted to Second Schedule of Income Tax Ordinance, 2001. The proposed law provides total exemption to “any income derived by a political party registered under the Political Parties Order, 2002 with the Election Commission of Pakistan.”

Analysts said such an incentive, given ahead of general elections due next year, is a big boost and the political parties will be comfortable spending on their election campaigns.

The political parties are required to submit their audited accounts to the election commission every year, declaring the income and expenses.

Tax experts said people would be free to donate funds to a party after the said change in the law.

“The change in the law will increase funding to political parties as all types of incomes generated through donations, contributions, and membership fees will be tax exempted,” said Abdul Qadir Memon, former president, Pakistan Tax Bar Association.  Memon said the Federal Board of Revenue (FBR), however, had authority to conduct audit of exempt income.

Analyst said untaxed bank accounts of political parties would threaten the integrity of politics in the country and could give a channel to black money .

Syed Rehan Jafri, former president, Karachi Tax Bar Association (KTBA), said the exemptions to political parties should have some limitations. “This law should not be misused and this should not be a parking place for illegal income,” Jafri added.

He suggested that the income tax exemption should only be allowed to the extent the election commission had allowed expenses on party campaign during the election year.  Currently, the Election Commission of Pakistan (ECP) allowed National Assembly candidates to spend no more than Rs1.5 million and provincial assembly hopefuls to Rs1 million.

Ahead of the 2013 general elections, a proposal was floated by the Election Commission of Pakistan (ECP) to increase the limit by four times, but the suggestion was rejected by a parliamentary panel.

A senior lawyer said it was unjust that political parties sitting in the parliament and the senate were granting self exemption. “The political parties are not a charity organisation, so on what ground are they able to avail such exemptions,” the lawyer asked.  The lawyer, however, said the clause also cleared that the exemption prior to tax year 2018 was not available. “Any concealment in the past years by a political party will be subject to audit, penalty and concealment as well,” the lawyer added.