Understanding the Benami Law

Understanding the Benami Law

Zeroing in on Benami transactions

In Pakistan, the Benami Transactions (Prohibition) Act, 2017 (Benami Law) was gazetted on 17 February 2017. The Benami Law became effective with the publication of the Benami Transactions (Prohibition) Rules 2009 vide SRO 326(I)/2019 dated 11 March 2019. The Benami Law prohibits a person from entering into a benami transaction, which is defined as:

  • a transaction where a property is transferred to a person (a benamidar) but the consideration for such property has been provided or paid by another person and the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration (the beneficial owner);
  • a property transaction carried out in a fictitious name;
  • a property transaction where the owner of the property is not aware of, or denies knowledge of, such ownership; or
  • a property transaction where the person providing the consideration is not traceable or fictitious.
  • As the practice of holding benami property – whether moveable or immoveable – in the Pakistani economy plays significant role in enabling tax evasion, money laundering and terror financing, the Benami Law has been implemented to achieve, inter alia, the following objectives:
  • to deal with the problem of tax evasion and black money, especially in the real estate sector;
  • to ensure that the ultimate beneficial owner and persons who abet or induce any person to undertake benami transactions suffer rigorous punishment;
  • to enable tax authorities to seize benami property, including the proceeds from such property and to prosecute those indulging in such activities;
  • to bring unaccounted money into the system;
  • to shut down channels for the flow of illicit funds, whether proceeds of crime or financing of terror activities; and
  • to restore the credibility of Pakistan’s financial system.

Prohibition of benami transactions

The Benami Law provides that:

  • No person can enter into any benami transaction;
  • Any benami property will be liable to confiscation by the federal government; and
  • Benamidar will not retransfer the benami property to its owner or to any other person acting on his behalf.

Offences and prosecution

The Benami Law provides strict punishments for persons entering into benami transactions as follows:

  • Any person found guilty of the offence of benami transaction or holding benami property will be punishable with;
  • rigorous imprisonment of at least one year, which may extend to seven years; and
  • fine up to 25% of the fair market value of the property.
  • Any person or any officer upon furnishing false information or documents to any authority in any proceeding under the Benami Law will be punishable with;
  • rigorous imprisonment of at least six months, which may extend to five years; and
  • fine up to 10% of the fair market value of the property.
  • Prosecution cannot be instituted against any person without prior approval of the Federal Board of Revenue (FBR).

Authorities

To implement the provisions of the Benami Law, the following will act as authorities:

  • Commissioner Inland Revenue will be approving authority of cases involving benami transactions;
  • Deputy Commissioner Inland Revenue will be initiating authority, who will initiate cases involving benami transactions; and
  • Assistant Commissioner Inland Revenue will exercise powers and functions of Administrator.
  • The Federal Board of Revenue will notify jurisdictions, powers and functions of above-mentioned authorities.
  • The federal government will notify adjudicating authorities that will consist of a chairperson and at least two members, and will have powers to regulate its own procedure and will have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit under the Benami Law.

Attachment of Benami property

  • To enforce any provision of Benami Law, any authority will have full and free access to any premises, places, accounts, documents or computers without prior notice and will have powers to impound and retain such documents and record for a period of 3 months;
  • The Initiating Officer will have powers to attach provisionally benami property for a period of 90 days;
  • The adjudicating authority will have powers to confiscate the property held to be a benami property;
  • The federal government will establish Federal Appellate Tribunal to hear appeals against the orders of the adjudicating authority;
  • The federal government will notify or designate one or more Courts of Sessions as Special Court(s) for trial of an offence punishable under the Benami Law.

Other provisions

  • The transfer of property subsequent to confiscation by the federal government will be null and void;
  • The provisions of the Benami Law will override other laws;
  • Any offence under the Benami Law will be non-cognizable;
  • If an offence under the Benami Law is committed by a company, any person responsible for the conduct of the business of that company will deem to be guilty and will be liable to be proceeded against and punished accordingly;
  • The Federal Board of Revenue will sanction reward to whistleblowers for providing credible information leading to detection of benami property or benami transaction. The Federal Board of Revenue has notified the cash rewards for whistleblowers in the Benami Transaction (Prohibition) Rules 2019 in the following manner:
  • 5% of the value of benami property if the value is Rs20,00,000 or less;
  • Rs 1,00,000 plus 4% of the value of benami property having value exceeding Rs 20,00,000 but less than Rs 5,00,000; and
  • Rs 2,20,000 plus 3% of the value of benami property having value exceeding Rs 50,00,000.As the Benami Law gives enormous powers to the tax authorities, careful implementation of the Benami Law is must so as to prevent abuse of powers entrusted under the Benami Law. Necessary measures require to be adopted to ensure reliable and credible implementation of the Benami Law and to prevent that these powers must not be abused.

Similarly, for effective implementation of the Benami Law and to eradicate practice of benami transactions, other institutions will also need to play their role in helping eliminate benami practices, as well as raising awareness. The law needs to be followed up with other steps to ensure that the tax authorities and the taxpayers are not left to decide this important matter by themselves.

Justification of the Law

The justification of enacting the law is very clear. It will definitely allow the government to take strict action against those who got their moveable and immovable assets registered with fictitious persons in order to avoid taxes and conceal their wealth. The law is also meant to boost documentation of economy and create enough deterrence for those indulging in such illegal and unhealthy practices. The Act will also serve to reduce money laundering and smuggling in the country. Giving a role to whistleblowers and reward them is a good idea to unearth hidden assets. However, while the objectives of the Benami Act are laudable, it must be stressed that it is not an easy job to ascertain white collar crimes, trace the benami transactions and convince the courts that the law has been broken without a shadow of doubt. Such a job is all the more difficult when the FBR is already overburdened and its staff are not famous for efficiency and honesty. In order to do the needed job, FBR may have to recruit persons who are educated, and well trained to ensure that the job is done well and the intended objective is, more or less, achieved. Besides, it would have been better to offer amnesty to those who had registered their assets in fictitious persons’ names before the enactment of law was notified on 11th March, 2019. Such a lenient view would have encouraged the concerned individuals to declare their assets in full and without any fear before the time was up for voluntary declaration.

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