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The registry will link different identity proofs, track details of financial transactions to curb tax evasion

The government will soon notify rules to set up a central Know Your Customer (KYC) registry that will link different identity proofs of an individual and track details of all financial transactions at one place in an attempt to curb tax evasion.

The Supreme Court-appointed special investigative team (SIT), looking into ways to tackle black money, had in a report which was made public on Friday recommended establishing such a central KYC and allowing all law enforcement agencies and financial institutions access to the database. SIT had recommended that the rules be notified at the earliest.

The central registry and steps taken by the government to increase the use of electronic payments are aimed at curbing tax evasion in a country where the tax-to-gross domestic product ratio is just about 11%. With the new measures, the government is trying to widen the tax base by tracking what people spend and then reconciling it with what they claim to have earned.

“At present, for entering into financial/business transactions, persons have the option to quote their PAN (permanent account number) or UID (unique identification number or Aadhaar) or passport number or driving licence or any other proof of identity,” the SIT said. “However, there is no mechanism/system at present to connect the data available with each of these independent proofs of ID. It is suggested that these databases be interconnected. This would assist in identifying multiple transactions by one person with different IDs.”

Instances of individuals using multiple PAN cards for different financial transactions have been reported in the past. The registry will help track such transactions to an individual with the help of another identity proof, such as a passport, as it is easier to obtain multiple PANs than multiple passports.

Also, a linkage between passport and PAN will help the tax department track foreign trips undertaken by an individual which are not explained by known sources of income.

A central KYC registry will also help reduce paperwork. Individuals may not need to provide their identity and address proofs every time while conducting a financial transaction once they are part of the registry.

The concept of a central KYC registry was initially introduced in the 2012 budget by then finance minister Pranab Mukherjee for implementation in 2012-13.

The department of revenue has framed rules for this registry under the prevention of money laundering rules and is awaiting the legal department’s approval before notifying them.

“The rules will address how the registry will collate and maintain information, the agencies that will be given access to this database and how to prevent misuse of this information,” said a finance ministry official, who did not wish to be identified.

This will help in reducing benami transactions, said B.M. Singh, a former chairman of central board of direct taxes. A benami asset is held in the name of another person or under a fictitious name to avoid taxation and to conceal unaccounted wealth. “It will be a challenge to link all the identity proofs and the success of the plan will depend on how the government manages to link the proofs that are at present issued by different departments,” he said. “Since Aadhaar has biometric information like retina scan to completely rule out duplication, linking it to all identities will be key,” he said.

The Indian tax department has already started seeding PAN with Aadhaar numbers to weed out duplicate PAN holders. To this effect, it is seeking Aadhaar numbers in the income tax return form from all taxpayers who have a UID. Once completed, it will eliminate the use of multiple PANs by the same person.

To curb the generation of black money within the country, the government has introduced the Benami Transactions (Prohibition) (Amendment) bill 2015 to amend the Benami Transactions (Prohibition) Act 1988 in the Lok Sabha. The bill provides for confiscation of benami properties and a fine of up to 25% of the fair value of the asset and imprisonment of up to seven years. The term property covers movable, immovable, tangible and intangible assets.

HT Mint, New DElhi, 28th July 2015

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