Govindraj Ethiraj: What's a PAN card for?

DOUBLE EDGE

My friend Ajay works on the distribution side of a large mutual fund in a small but traditionally industrial southern city. Over the weekend, he was telling me how the last few days at work have been extremely worrying. Fresh applications for mutual fund unit purchases, which usually run into double digits everyday in his branch, have dropped to zero. Redemptions, on the other hand, continue at the same pace as before.

The reason: From July 2, anyone investing in a mutual fund has to produce a permanent account number (PAN) card issued by the Income Tax department. Earlier, the number had to be produced only if the amount was Rs 50,000 or over. Most applicants, says Ajay, thus used to write out cheques for Rs 49,000 or less, thus avoiding submitting the PAN card number, if they had one.

It did not stop there. Using a modus operandi perfected in the era of IPO price controls, there were for different schemes and in the names of different family members. The permutations and combinations add up to several lakhs of rupees from one family, often as much as they had an appetite for. And according to Ajay, this is just his mutual fund house. And then they could invest in many others.

Industry honchos are upset with the PAN rule. One reason being that Ajay's constituency of investors is an important one and represents, according to some estimates, almost 30 per cent of the collections that come into the overall kitty. And admittedly, buying a mutual fund unit will not be a breeze anymore. Particularly for the small Systematic Investment Plan (SIP) kind of investors who invest in hundreds and thousands of rupees every month.

So the PAN card, which was supposed to be a simple means to identify tax filers, is now being put to more uses. That's great. What is not is the following. First, only entities that "report" to the Finance Ministry recognise it. For instance, the Ministry of External Affairs or, more specifically the Passport Office, won't give a damn. Your PAN card might well have been issued by the Republic Of Mars. Second and more importantly, what is the government doing with all this information? One is not saying that the hardship has to translate into some freebies. No, simply, that someone has to be accountable for this utter waste of time and energy. And demonstrate in clear terms how this has helped or is helping.

The Finance Minister in his Budget speech in 2005 introduced a banking cash transaction tax (BCTT) as a tool to check the flow of black money. Despite the opposition, including from experts who pointed out the government was collecting such information in any case through Annual Information Returns and the like, he stuck to his guns. In the 2006 Budget speech, he said the "databases" were still being expanded. He also claimed some success in the detection of money laundering, notably one set involving over Rs 1,500 crore at a Chandni Chowk branch in New Delhi. In the 2007 Budget, he raised the exemption for tax from Rs 25,000 to Rs 50,000 and promised to look into the matter of levying such a tax in 2008-09.

And yet I wonder. Have large sums of hidden and unaccounted for wealth been uncovered since? Where are they? Who are the people behind them? Have they been brought to book? How is a guy who launders Rs 1,500 crore so low-profile? After detection! To be fair, no one is saying the Government has no right to ask for PAN card details. I too wonder how someone investing in a relatively sophisticated instrument like a mutual fund has problems in filing for and obtaining a PAN card. Unless there is something to hide. Given the manner in which multiple applications are filed, to quote my friend Ajay's story, clearly there is.

What I am saying is that the government needs to handle this whole thing better. To reiterate, there has to be accountability somewhere as to what is being done with this information. Is there, for instance, the chance that data may get compromised? Second, if the PAN card is becoming the single identification point of every citizen's every financial transaction and thus the identification itself, then why not give it more importance and ensure its acceptance goes beyond airline counters?

I recognise this would be contingent on the outcome of various, meaningless inter-ministerial turf battles. Equally, that it must have been debated tonnes of times before. But that's really not my problem. I can't be asked for a ministry of food and civil supplies document (ration card) as proof of existence when everything about me and more is available on a Income Tax database.

govindraj.ethiraj@bsmail.in