Tax authority eager to net taxable entities behind Benami transactions

KARACHI: The apex authority finds itself on the edge when it comes to trace the Benami transactions, done through identity theft or concealment, as it is struggling to broaden the small tax base by taxing the real face behind them, sources said.
The sources said it has been found that a large number of potential taxpayers are not behind such transactions, especially in real estate sector and automobiles’ buying and selling.
“In many cases the persons whom the notices were sent had not made transactions and someone else misused their CNICs (computerised national identity cards),” said a tax official.
The sources said the directorate of broadening of tax base (BTB) issued around 400,000 notices to enforce income tax returns after gathering information of such transactions, including properties, purchase of vehicles, mobile phones, educational institutions and banks.
They said the exercise led to around 200,000 more returns, bringing the total returns for the tax year 2014 to 972,000.
The official said the Federal Board of Revenue (FBR) is taking action, under the Section 111 of the Income Tax Ordinance, 2001 to encounter the issue related to unexplained income.
The official said a person is liable to pay tax in case unexplained transaction is made in his name under the existing laws.
However, the FBR can initiate an inquiry if the taxed person complains of his identity misuse.
The official added that the government is mulling to enact benami transaction laws to eliminate the undocumented income or black money.
Efforts have been initiated at the government level to eliminate benami transactions as the government committed with the International Monetary Fund to introduce the draft legislation by end-January 2016.
Tax Reform Commission (TRC), in its May 2015 interim report, advised the government to immediately come up with a legislation to curb benami transactions.
The TRC said benami transactions are one of the sources of circulation and investment of black money.
“Benami transactions are a conduit to channelise black money earned through corrupt and illegal practices,” the report said. “This conduit is also employed to conceal assets disproportionate to known sources of income.”
The report said a substantial parking place of ill-gotten wealth is placed in real estate sector due to the difference in collector rate of the property and fair market value, a good percentage of this investment is benami.
TRC recommended this vehicle of circulation and investment of black money should be urgently plugged.
Various estimates said the FBR received 560,000 details of immovable properties obtained from estate registration authorities in Karachi and Lahore.
Furthermore, Bahria Town (Private) Limited and Private Construction Companies have provided details of 45,000 properties.