T N Pandey: PAN purpose lost in clumsy implementation

TAXING MATTERS

Since the past 30 years, the Income Tax Department has been struggling with the task of issuing Permanent Account Numbers (PAN) and notifying the areas, documents and papers where these are to be quoted and issuing instructions on compliances to be made, neglecting the purpose for which the PAN were intended to be used.

The way the process is being handled indicates that the numbers are becoming an end in themselves, not a means to achieve something more important.

The PAN was conceived by Wanchoo Committee (1971) to provide a system of indexing of all taxpayers in the country, because its absence had handicapped the IT Department in tackling tax evasion.

According to the committee, this deficiency has "prevented proper linking of information expeditiously to the assessee to whom it relates to and has also resulted in the records and the accounts of the taxpayers not being properly maintained. There is no gainsaying the fact that both the taxpayers and the department will stand to benefit by the introduction of a system of permanent account number".

This recommendation was implemented by the Taxation Laws (Amendment) Act, 1975. There have been considerable changes in the relevant section since it was enacted to introduce refinements and to enlarge the area where PAN should be quoted mandatorily.

In the past three decades, many issues relating to PAN have cropped up. These include:

Who should obtain PAN?

In which situations is getting PAN mandatory?

In what documents should PAN be quoted?

What is the liability of persons receiving incomes in the matter of quoting PAN?

Is it necessary for the tax deductors to quote PAN in papers relating to TDS?

What are the situations where PAN provisions need not apply.

Should sellers quote PAN for Section 206C certificates?

What is to be done by persons who have not got the PAN?

Who are the persons to whom PAN provisions do not apply?

Who is to ensure that the correct PAN is quoted?

Procedure for applying for PAN; and few other matters.

Recently, the government has prescribed that PAN has to necessarily quoted (keeping in view the monetary limits mentioned), when applying for a bank credit card, payment to mutual funds, applying for shares or debentures in companies and applying for RBI bonds.

The foregoing account shows that the Income Tax Department has got bogged down by the numerous procedural details concerning the allotment of PAN. There is no report or information from its side as to what has been the outcome of various exercises concerning PAN in past so many years in terms of revenue gain.

In other words, is the objective conceived by the Wanchoo Committee for PAN being achieved? What is the machinery for interlinking the information on taxpayers that is now available consequent to various notifications of the IT Department?

Has the matching of information led to detection of new taxpayers and evaded incomes? If so, to what extent? Has the department invoked provisions on penalty and prosecutions in the cases of assessees who have been found not to be discharging their income tax obligations on the basis of information collected through the documents where PAN has been quoted or is the IT Department merely pursuing a wild goose chase?

What has been the revenue impact (year-wise) of the requirement of quoting PAN? Has the need for quoting PAN created deterrence to concealing transactions? Has any publicity been given regarding the success of the scheme of PAN?

There are many other issues like these that remain unresolved and are creating doubts about the efficacy of the entire scheme. Further, there is growing feeling that a work that could have been planned in a year and given a definite shape has lingered on for so many years because of inefficient handling.

Even now the focus continues to be on routine work relating to allotment and no concerted effort is being made to assess the efficacy of the scheme and publicise its usefulness and gains that have accrued to the revenue consequent to the initiation of PAN scheme.

To make the scheme to yield results, for which it has been framed, the following actions seem necessary:-

A time limit needs to be fixed for completion of pending work;

A procedure for early clearance of the new applications"" say within 7 days""needs to be framed and adhered to;

The agency, to whom the work of issuing PAN has been entrusted, should be made accountable for lapses, delays in issue and deficiencies in regard to work done. Monetary fines should be imposed for these.

An in-house committee should be constituted by the Central Board of Direct Taxes to assess the usefulness and efficacy of the system, which should mention about the deficiencies and also report about the gains to revenue consequent to PAN.

The working of PAN should be reviewed every three years to make it more useful and findings of this study be published.

A hard look at the present way of working, concerning PAN, is necessary as it has to be realised that the work, concerning PAN, is merely a means to an end - not an end in itself, which is presently happening.