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Making benami deals transparent

Making benami deals transparent

DESPERATE to tap new sources of income, the federal government is introducing a law to check the benami transactions, most practised in land deals.

The ruling PML-N is all set to table a bill in the National Assembly to prevent deals that do not record the real owners’ name and the property is registered in someone else’s name.

The farmlords hold lands in the names of servants or distant relatives to show their income below taxable limits.

Traditionally, land has been one of the most lucrative investment seeped in unethical practices. Neighbouring India already has such a law, and financial constraints are pushing our government to do the same.




The draft law titled ‘The Benami Transactions (Prohibition) Act 2015’ empowers the federal government to confiscate the property held benami. But it will be a herculean task to overcome the resistance from the powerful land lobby and get the proposed law passed by a legislature dominated by the landed gentry.

Acquiring and holding property benami is basically a tax evasion tool. The actual owner of the property does not have sufficient declared income and financial sources to justify the investment in acquisition of the property. To hold the property in another person’s name is an attempt to conceal one’s ownership, which otherwise cannot be justified.

Under the draft law, benami transaction is defined as an arrangement where property is held by a person on behalf of another person, who has actually paid for the property or the transaction is made for a property in a fictitious name or where the owner of the property denies knowledge of ownership, or where the person paying the consideration for the property is not traceable or is fictitious.

The need for the law was felt following observations that most of the untaxed money landed in the real estate sector.

The government has also assured the IMF to make the legislation as a part of the 10th review of the extended fund facility to get the next tranche of $500m.

An IMF’s latest report said Pakistani authorities will prepare and submit draft legislation against ‘benami’ transactions to the parliament, “in which assets are held by or transferred to a person, but have been provided for, or paid by, another person under structural benchmark.”

During the current drive against non-filers of income tax, it was observed that notices were issued to people (on the basis of available information on assets) who were even not aware that their CNICs were being used for opening of bank accounts, property and vehicle registrations.

The proposed amnesty scheme for traders is also an initial attempt to bring an end to benami bank accounts.

However, critics point out that there are several inherent loopholes in the proposed legislation. The first question is whether the federal government has the right under the constitution to make land related laws. But tax official believe once the law is tabled in the National Assembly all such questions will be considered.

Tax experts say the government needs to revisit the definition of benami transactions. There is no restriction to buy property through known source of income in the name of their spouses or children, brother and sisters or lineal ascendant or descendant where their names appear as joint owners in the document and a person standing in fiduciary capacity for the benefit of another person, such as a trustee, executor, partner or director of a company, are excluded from the scope of the benami law.

It is also not clear whether the law will have retrospective effect or will apply to transactions from the date of its implementation. How will the previous benami land transactions be legalised?

Some tax experts say the government will have to give time for transferring land title to the original owners. The draft law says: those found guilty of having violated the provisions of the proposed law face rigorous imprisonment for a term not less than one year, but which may go up to seven years.

If any person knowingly furnishes false information, he/she will face rigorous imprisonment of not less than six months, but which may extend to five years. However, there is no penalty in cash for such violations.

Under the proposed law, there is an elaborate appellate mechanism with required provisions for vesting of power to the relevant authority. There are rules for constitution of benches of adjudicating authority.

A federal appellate tribunal will hear appeals against the orders of adjudicating authority. Even the aggrieved person can file an appeal in the high court against the order of the appellate authority.

Published in Dawn, Business & Finance weekly, January 25th, 2016

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