Untaxed money saves skin sans laws to check Benami transactions

LAHORE: Investors manage to park their undisclosed wealth into property, stocks as well as bullion markets in Pakistan as the laws are conspicuous in absence to check Benami transactions.

PricewaterhouseCoopers, in a report, said in countries like Pakistan where tax compliance is not adequate, benami transactions are used to park untaxed money in the form of benami real estates, bank accounts, stocks and shares and other asset forms.

“In such cases, the immediate and future, direct and indirect benefit of the property acquired from untaxed money lies with a person other than the person reflected as owner, whereas the consideration for the property acquisition is paid out of untaxed money by the person holding beneficial rights other than the person who is reflected as having ostensible right in the property,” it added.

In the absence of benami laws, there can be actions against the income that is not taxed, including properties charges. However, there is no direct right of the state to confiscate the properties held in benami. 

In 2008, the draft Benami Transactions bill was moved into the parliament. In 2015, the parliamentary committee of the National Assembly vetted the bill, while the federal government approved the bill in October 2016. The law has yet to be enacted. 

After the enactment, it will be the most important legislation introduced in the country and will have far reaching consequences on finance, tax and banking sectors. All benami transactions will be punishable crime in the manner laid down in the Act. Government can also confiscate benami properties after due process under the law. Furthermore, there will be a prohibition on the retransfer of benami property held by ‘benamidar’ to the beneficial owner.

Person, holding the benami property, is termed as ‘benamidar’ and person for whose benefit such property is held is called beneficial owner. Under the new benami law, property means asset of any kind, movable or immovable, tangible or intangible, corporeal or incorporeal, and includes rights or interest or legal document evidencing property ownership. 

Given the tax collection records in Pakistan and the way most of the tax evaders live, there is a solid case to take action against the genuine beneficiaries. 

The law will also make difficult the life of those, who use their unaccounted income to buy assets in the names of other people (servants or drivers) to evade detection by the tax authorities. In fact, the people, on whose names the benami assets have been purchased, will too be brought to book.

Without benami laws, tax collectors still have an access to data to catch tax evaders. National Database Registration Authority and the Federal Board of Revenue collect data through several different ways. Banks, mutual funds and other institutions regularly send information about certain transactions in the form of annual information reports. Now, all major transactions require computerised national identity card numbers, providing the tax collectors with money trail. Tax authorities, however, have to muster courage to nab the influential tax evaders.