This blog is written by Mr. Sachal Aftab, Associate Taxation Advisory Services. Please read this blog and provide your valued comments.
Benami is an Urdu or Hindi term denoting or meaning “without name” or “In no one’s name” or simply nameless. An old way of controlling the right to own, control or manage an asset by putting it into the name of another person. In this way, the real beneficiary of such asset is excluded from the audit trial pertaining to income or benefit generated from the use of asset.
Let assume Mr. X buys a building in the name of Mr. Y and let it out to Mr. Z, and the latter pays the rent. In substance the income relates to Mr. Y, but it actual form the rental income pertains to Mr. X.
Well the actual use of this technique is not so simple in real life commercial scenarios. In fact, it impossibly difficult and takes huge time, effort & resources to locate the ultimate beneficiary of such a transaction. The above quoted example also illustrates the phenomenon of Benami Transactions.
Usually these transactions are rubbed with other tax efficiency schemes to make the whole picture as deep as Leonardo Da Vinci’s Salvator Mundi and complicated as Jackson Pollock’s Number 17A. These tax efficiency schemes include Transfer Pricing, Double Irish and the Dutch Sandwich and lots of offshoring and shell corporate layering.
There are two main objectives or purposes of this cumbersome exercise;
- Tax Evasion & Dodging.
- Concealment of Undeclared Assets.
- Money Laundering.
- Terror Financing.
In Pakistan’s context and as per Mr. Shabbar Zaidi’s reliable estimates in his book Panama Leaks, undeclared & undocumented assets held by Pakistani’s overseas’ are somewhere around $ 150 Billion. Whereas, Pakistan’s debt (external) stands at around $ 102 billion, with Debt to GDP at 79%, as per the debt clock. From another angle it means that we still got cover for $ 50 Billion more to get our gearing a bit more high, depending on if this undeclared amount is declared, and someone takes this huge figure into ownership and stop it from being the Benami widow, it is today.
Benami property & Benami Transactions are policed by Federal Board of Revenue of Pakistan, the fiscal authority in the country and its 20,000 + strong head count. FBR through its Benmai Transactions (Prohibition) Act, 2017, which was passed by the parliament in recent past, regulates and controls the practice of benami transactions. The Act defines the significant terms as;
Sub-Section 9 of Section 2 of the Benmai Transactions (Prohibition) Act, 2017, states;
“Benamidar” means a person or a fictitious person, as the case may be, in whose name the benami property is transferred or held and includes a person who lends his name;
Sub-Section 7 of Section 2 of the Benmai Transactions (Prohibition) Act, 2017, states;
“Benami property” means any property which is the subject matter of benami transaction and also includes the proceeds from such property;”
Sub-Section 11 of Section 2 of the Benmai Transactions (Prohibition) Act, 2017, states;
“Beneficial owner” means a person, whether his identity is known or not, for whose benefit the benami property is held by a benmaidar.”
Sub-Section 8 of Section 2 of the Benmai Transactions (Prohibition) Act, 2017, states;
“Benami Transaction” means,
- a transaction or arrangement—
- where a property is transferred to, or held by, a person and the consideration for such property has been provided, or paid by, another person; and
- the person is held for the immediate or future benefit, direct or indirect , of the person who has provided the consideration, except when the property is held by;
- a person standing in fiduciary capacity for the benefit of another person towards whom he stands in such capacity and includes a trustee, executor, partner, director of a company, agent or legal advisor, and any other person as may be notified by the Federal Government for this purpose; or
- any person being an individual in the name of his spouse or in the name of any child or in the name of his brother and sister or lineal ascendant or descendant and the individual appearing as joint owner in any document of such individual and the consideration for such property has been provided or paid out of know resources of income of the individual; or
- a transaction or arrangement in respect of a property carried out or made in a fictitious name; or
- a transaction or arrangement in respect of a property where the owner of the property is not aware of, or denies knowledge of, such ownership; or
- a transaction or arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious;
As is evident from reading the legal provisions and definitions in relation thereto, it is explicit that the benami phenomenon is utilized to benefit from the fruits of corruption, loot and other heinous crimes. To curb this practice the Federal Board of Revenue, Pakistan had issued the rules and procedures to deal with any such property, assets or transaction the apex revenue authority encounters. In this respect the Federal Government has issued the Benami Transaction (Prohibition) Rules, 2019 on March 11th, 2019.The act will operate in conjunction with other laws enforced by the FBR. The treatment for Benami Transaction under the rules is as follows;
The officers to operate under this act shall be;
- Adjudication Authority: Federal Govt. shall appoint as many persons as it deems necessary out of the persons forwarded by the Secretary Revenue Division to the Federal Govt. qualifying the criteria prescribed under sub-section 3 of section 6 of the
- Approving Authority: Commissioner Inland Revenue
- Initiating Officer: Deputy Commissioner Inland Revenue
- Administrator: Assistant Commissioner Inland Revenue.
- In the first part the property shall be provisionally attached under the act and respective provisions of Income Tax Rules, 2002.
- The order to confiscate shall be sent to the Approving Authority (Commissioner Inland Revenue).
- The Approving Authority shall direct the Administrator (Assistant Commissioner Inland Revenue) to take steps for confiscation of the property as per his discretion, suitable in the circumstances.
- The Approving Authority shall also intimate the concerned federal or provincial registration authority, the fact about the confiscation of the Benami Asset under the Act and Rules.
- A notice shall also be attached on the immovable property to bring the public into the notice of the confiscation in relation to the confiscated asset.
In case of movable property;
- The approving authority forthwith direct the Administrator to proceed to take any or all steps mentioned in this sub-rule.
- The approving authority shall forthwith issue a notice to the authority or person having the custody of such movable property informing that the property has been confiscated.
- The approving authority shall sell the property, if the property is liable to speedy and natural decay or the expense for maintenance are likely to exceed its value, with the written approval of the concerned Adjudicating Authority and deposit the receipts into the Govt. treasury.
Any person may file an appeal against the order of the Adjudicating Authority, in the form & manner prescribed under the Act, to the tribunal against the order passed by the adjudicating authority, within a period of 45 days from the date of receipt of order.
Last but not the least, although this law, powers and allied measures to eliminate this menace is crucial for the economy but at the same time there is a grave concern about the abuse the powers conferred by the law. There must be established a body to allow the fair and adequate implementation of the law to use it in the best interest of the nation, rather than for personal revenge or political engineering. Then there is a need to change the culture as well, most of our economy is undocumented but it does not support the criminal or terror activities as is evident from the fact that Pakistan ranks among the few generous countries who contribute ample fortunes to charity and donations, even these charitable donations are undocumented as major chunk is given in cash. Our culture to conceal or hide wealth is one of the impediments in documentation process as the people are not aware with the tax laws, they are also doing this to avoid the blackmailing form different government authorities. Cottage industry, local business like shops, marts and home based industry is also widely undocumented. There is a grief concern about the implementation of the subject laws ans regulations in relation to this aspect of the economy.