379 million and counting: What the sharp increase in PAN enrolment tells us

The Union finance ministry has released a fresh set of data on Permanent Account Numbers (PAN), a unique 10-digit alphanumeric identity, issued to each tax-payer by the Income-Tax Department. A close look at the data reveals many trends that say a lot about India and its demography.


At the end of March 2018, the total number of PAN issued to 10 categories of tax-payers was 379 million. Individuals accounted for 97.5 per cent of the allotted PAN or about 369 million. Other categories like association of persons, body of individuals, company, firm, government, Hindu undivided family, artificial juridical person, local authority and trust accounted for just 2.5 per cent of the total PAN issued till the end of last financial year.


Compare these numbers with those at the end of March 2017, the recent pace of activity in generating and allotting new PAN to tax-payers will appear nothing but phenomenal. The increase in the number of PAN in the one-year period was 28 per cent. In other words, about 85 million fresh PAN were issued between April 2017 and March 2018, of which 84 million were for individuals. That is an impressive rate of over 7 million new PAN holders every month.


The absolute number of individuals with PAN needs to be placed in the context of India's total population that is estimated at about 1.3 billion in 2018. India's working population should be about 470 million, assuming that the workforce is about 36 per cent of the total population (going by the 68th Round of the National Sample Survey). About 45 per cent of those who are part of the workforce, or about 207 million, are estimated to be engaged in agriculture and many of them will be outside the income-tax net and hence may not need a PAN. So, what does allotting PAN to 369 million individuals actually mean? Has the drive to allot more PAN to increase tax coverage resulted in many people acquiring these cards even though they are not tax-payers?


That is perhaps why in 2017-18 the number of tax returns filed amounted to only 68.4 million, just about 18 per cent of the total individual PAN holders in the country. In 2016-17, 54.3 million returns were filed compared to 286 million individual PAN holders as at the end of March 2017. True that the rise in tax returns was more or less in tune with the increase in the number of PAN. But the low share of returns in the total number of PAN holders deserves to be examined to find out if it is only a compliance issue or whether the purpose for which PAN is being secured is different.


It is also possible that the huge rise in the number of PAN could be due to the system's inability to detect fake numbers created without any proper foolproof identity validation. There are many reported instances of one person holding more than one PAN, which is its major weakness. The exercise to ask PAN holders to get their identity numbers linked with Aadhaar was aimed at de-duplicating the income-tax department's database. However, till March 12, 2018, only about 168 million PAN could be linked with Aadhaar. This was less than half of the 365 million PAN issued to individuals by that time.


There is, however, a moderate improvement in the gender mix of individual PAN holders in the last one year. At the end of March 2017, about 68 per cent of individual PAN holders were men and women accounted for the rest. By March 2018, the share of men among PAN holders declined to 65 per cent and that of women rose to 35 per cent on a substantially increased base. This is also a reflection of the low women participation in labour force, estimated at only 27 per cent of the working-age population. But even then it is clear that more women are enrolling for allotment of PAN, signifying rising women participation in the workforce.


Did demonetisation in November 2016 contribute to the sharp increase in the number of PAN holders? There was no significant increase immediately after 86 per cent of India's currency in circulation was annulled on November 8, 2016. The number of PAN holders in March 2016 was estimated at 246 million, which rose by just 16 per cent to 285 million by March 2017. The increase in the 12 months after March 2017 was much higher at 29 per cent with the figure reaching 369 million by March 2018. It seems that the income-tax department's drive to speed up the allotment of PAN gained momentum a few months after demonetisation. How real that spike was will be clearer as the government succeeds in its de-duplication exercise by weeding out fake numbers and ensuring a sharper increase in the number of tax returns these PAN holders file in the coming years.

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