FBR gears up to check tax evasion in Benami transactions

KARACHI: The Federal Board of Revenue (FBR) is geared up to crack down on individuals who manage to evade taxes on their unreported transactions as the newly-enacted Benami laws are soon to empower the board to take legal recourse against the actual beneficiary, officials said on Saturday. 

The officials said the tax authorities made all the arrangements to take action against thousands of such transactions after the implementation of the laws.

In February, the parliament passed the Benami Transactions (Prohibition) Act, 2017, enabling the authorities to take legal action against individuals, taking tax benefits of undocumented properties, which are actually in the name of their front man.

“Both the legislative houses have passed the bill and now it will be signed by the prime minister and the president for formal implementation,” a senior FBR official said. “Previously, we couldn’t initiate proceedings against Benami transactions due to non-availability of law.”

The FBR, through its broadening of tax base drive, detected around 5.6 million transactions till June 30, 2016, which were not reported by taxpayers through their annual returns. The transactions were made by individuals who were not in the tax net, but liable to file their annual returns as well as declaring income and assets.

The official said the FBR has already served around 0.46 million notices against these transactions, “but it was found in most of the cases the real beneficiary was someone else.”

The official said the proceedings in such cases are halted till the law is implemented. The official didn’t disclose the potential quantum of Benami transactions. 

Under the Benami Transaction (Prohibition) Act, 2017, the FBR has been empowered as administrative body. Further, an Inland Revenue Officer at the position of deputy commissioner has been authorised to initiate legal proceedings in Benami transactions. The official is also authorised to initiate proceedings under the Income Tax Ordinance, 2001, which will include confiscation of a Benami property.

The Act defines Benami property as “moveable or immovable, tangible or intangible, corporeal or incorporeal, and right or interest.”

The Benamidar – a fictitious person in whose name the Benami property is transferred or held – is liable to an imprisonment of one to seven years.

The introduction of Benami law was enacted in line with the recommendations of the Tax Reforms Commission (TRC) submitted to the finance ministry in 2015. The TRC proposed a law as a strategy to discourage tax evasion and non-reporting.

Ferguson & Co, a chartered accountant member firm of Pricewaterhouse Coopers network, in its report, said the Benami law is a confiscatory law, “but justified in present circumstances.”

The report said Benami property ‘culturally and historically’ is common in rural land acquisition.

“Urban properties are also kept in Benami but mostly in the cases where the sources are illegal.”