Ask anyone, anytime, anywhere in the country to prove his identity; in all probability and quite innocently he will flash his Permanent Account Number (PAN) card, and with equal comfort and confidence it is accepted by the person seeking evidence of identity. This is because today PAN is easy to obtain and costs a little over one hundred rupees, it is good source for authentication as it carries the picture of the person, the plastic card cannot be tampered, is presentable, and safe to handle.

The act of flashing the PAN card is innocent, for PAN was not intended to be proof of identity, but in absence of any other contemporary number or document issued by any government agency, this role has evolved spontaneously. The comfort with which PAN is accepted as proof of identity also stems from the new, de facto role of PAN, though the confidence is not all good.

It was in 1969-70, yes that long ago, that the Income Tax department introduced PAN as the taxpayer identification number. The legal framework introduced in the beginning evolved over years, yet several years the department could not set up systems and processes to ensure easy availability of PAN. In the result, its compliance could not be enforced, while the compliance compulsions continued to build up a huge demand for PAN.

In 2003, the department decided to outsource the interface with PAN applicants to UTITSL, followed by NSDL. The dramatic improvement in service began to quench the pent-up demand that in turn caused a groundswell for PAN. After it became easy for people to obtain PAN, in 2007 the Government of India decided that PAN should be used as the common business number (CBN) for the entire financial sector, including indirect tax system, provident funds, imports- exports, stock markets, mutual funds. Today this number is used for KYC by the entire banking sector and all mobile service providers. In short, today PAN is driving compliance and efficiency in the financial system.

Ever since 2003 and in the absence of a viable citizen ID, PAN spontaneously emerged as the proof of citizen ID. As a result in the past few years, PAN enrolment has grown at 20-25% and this number is sought by almost everyone. As against 30 million taxpayers, PAN enrolment has crossed 100 millions, which is 10% or so of the entire population.

Quite contrary to the situation on the ground, government systems remain ignorant and in denial of the given and assumed roles of PAN and consequent groundswell of demand for it. Consider the extract from Report # 26 of 2010-11 (Direct Taxes) of CAG: ”PAN issued upto March 2009 and March 2010 were 80.79 million and 95.8 million respectively. The returns filed in 2008-09 and 2009-10 were 32.65 million and 34.09 million respectively. The gap between PANs and the number of returns filed was 61.71 million in 2009-10. The Board needs to identify the reasons for the gap and use this information for appropriately enhancing the assessee base. The gap may be due to issuance of duplicate PAN cards and death of some PAN card holders. It is significant to note that the number of PAN card holders has increased by 117.7 percent between 2006-06 and 2009-10 whereas the number of returns filed in the same period has increased by 14.4 percent.”

The observation on PAN in the CAG report is perhaps prompted by the popular perception that PAN is a taxpayer identification number. While it is true that all taxpayers should obtain a PAN, the converse that all PAN holders are taxpayers is no longer valid. Today the PAN is used by the entire financial sector; evidently all financial transactions, where quoting of PAN is mandatory may not result in liability to file a tax return. For instance, if an NRI were to buy a house in India with money that brought into the country, the buyer will have to obtain a PAN, open a bank account and mention it in documents for registration of the property, yet there may be no need to file an income tax return. Similarly, the banking sector uses PAN for KYC, but all those who open bank accounts may never have to furnish a tax return. Finally, there are millions who use PAN to assert their identity. Hence, 100 million PANs against 30 million taxpayers.

The growing use of PAN as a taxpayer identification number, its relevance in the entire financial sector and assumed role of proof of citizen identity is also becoming its weakness. While the algorithm for de-duplication ensures that duplicates (more than one PAN to one person) are an exception and not the rule, it is possible to obtain fake PAN through bogus breeder documents. But this is not necessarily a technology problem and can be resolved through legal deterrence and aggressive risk management. The stage at which PAN is today is just ripe for leveraging on it to build a robust and resilient citizen identity and verification ecosystem.