Duplicate Pan cards are allegedly being used to evade the paying of taxes

Yet another major fraud in our stock markets has come to the fore as a major chunk of 1.1 million duplicate Pan cards deactivated by income tax department belonged to market players. Even the best known names in brokerages, sub-brokers and their clients have taken the duplicate Pan card route to open demat accounts, trade in stocks and debentures and other market instruments, made capital gains and at the same time evaded payment of taxes.

Shell companies also seem to have availed multiple Pan cards to launder funds on behalf of their principals, promoters and large corporate houses to evade payment of taxes. If income tax officials briefing is any indication, most of stock market participants easily evaded taxes by using one Pan card to file tax returns while deploying others to make investments in financial instruments and undertake high value transactions.

This has not only flummoxed the income tax officials but also the finance ministry mandarins as the fraud continued with impunity over the last few years undetected by the markets watchdog, Securities Exchange Board of India (Sebi). Some investigators post-demonetisation even went to the extent of pointing to an unholy nexus between market participants and some Sebi officials as the cause for studied silence of the market regulator. Otherwise, there’s no reason why  Sebi could not have cracked down on erring market participants or their high net-worth clients who evaded payment of taxes through unscrupulous means.

Way back in 2006, Sebi did take the first step by making Pan numbers mandatory to undertake market transactions in the cash segment. Curiously enough, following representations by the broking community including foreign portfolio investors or their front-end operators, several relaxations were allowed in quoting Pan. Sebi gave several extensions before making Pan mandatory for transactions beyond Rs 50,000. This also happened only when all other cash transactions required quoting Pan mandatory beyond this limit.

Duplicate and multiple Pan numbers and cards with slight variations in names of individuals and firms having a huge stake in stock markets came to the notice while income tax department tracked cash deposits of Rs 2 lakh and above following demonetisation of high value currency last November.

It is rather unacceptable that over 250 million people, companies and trusts have Pan numbers and those filing tax returns do not exceed even 56 million. Curiously enough, prior to demonetisation, those filing returns was a paltry 24 million while India continued to boast of a huge bustling middle class with huge spending and market power. More surprising is that a large chunk of 250 million Pan numbers get routinely quoted in stock transactions, especially the high value purchases and sales.

Out of over three lakh shell companies pointed to by prime minister Narendra Modi in his Republic Day address, a large chunk continue to use these Pan numbers to move funds across borders, launder, round trip profits earned abroad and evade payment of taxes. Already, 1.62 lakh such paper-based firms used for manipulations have been de-registered. While a decisive push has been given to wind up most of these fraudulent outfits, there’s no reason why Indian corporates, their handlers and investors cannot be held to scrutiny.

 Sebi, income tax department, corporate affairs and finance ministry officials will have to work in tandem to rout this large-scale corruption in the market. A similar weeding will have to happen in the banking sector where multiple bank accounts have been created using duplicate Pan cards. Logical consequence of the investigation on Rs 1.75 lakh crore cash deposits and an additional Rs 2 lakh crore inflows into banking system will weed out the duplicate and multiple Pan cards.