With more than 1.25 billion people calling it home and some 500 million individuals forming the backbone of its labor force, keeping track of who is paying the correct amount of taxes and who is not can be a really daunting task.
Before the advent of the Permanent Account Number, an innovation that truly revolutionized the Indian taxation system, collecting revenue data from hundreds of millions of workers was a formidable task. One can only appreciate the usefulness of the PAN and its physical representation, the PAN Card, if you have an idea of its historical development.
Pre-PAN Card Era
Taxpayers in the Indian economy were initially identified through their General Index Register. Since the time period was still void of any remarkable digitalization and computerization systems, one can always look at the GIR as a very Jurassic – a very outdated, labor-intensive, and highly inefficient – method of keeping track of the income tax activities of every single person in the country who is bound by law to pay his or her tax dues.
Sadly, the GIR had its drawbacks. First, any given GIR is unique only to a particular ward or assessing officer. The downside is pretty obvious. If, by stroke of misfortune, two different assessing officers issued the same exact GIR Number with exactly the same sequence of characters to two different individuals, the mix-up at the Tax Office can be quite baffling. Second, the same nature of the GIR resulted in increased risk of miscalculations and errors in computation especially during the assessment of taxes. In other words, there was no way to determine whether you’re paying the correct taxes or not.
First Generation PAN
In 1972, the very first PAN was rolled out to help address the issues inherent in the old GIR system. Take note, however, that the First Generation PAN was still largely manual. Blocks of PANs were given or assigned by the Board to every single Commissioner Charge. In turn, each Commissioner Charge allotted sub-blocks of Permanent Account Numbers to different Assessing Officers. This system eliminated the risk of duplication of PANs.
Regrettably, this PAN still failed for the following reasons:
- There was no database of PANs leading to the possibility of issuing multiple PANs to a single taxpayer.
- While computerization began in earnest, the data capture system only included very few parameters.
- The allotment of PANs remained at the local Assessing Officers’ level. This allowed a single taxpayer to apply for different PANs from different centers.
- PAN had an arbitrary status insofar as jurisdiction is concerned.
The New Generation PAN Card
Because of the limitations of the first generation of PAN, the Indian government made the necessary amendments to its Income Tax Act of 1961 in 1995. The new PAN made sure that all transactions and documents related to a taxpayer will be linked and processed using a unique identifier – the Permanent Account Number.
Registering for a new PAN is now made mandatory for all individuals – foreigners and locals alike – who are considered as taxpayers and is now fully-centralized.