Benami Transaction Law In Pakistan: The law on Benami (anonymous) transactions has caused a great deal of controversy in Pakistan. Therefore, it is very important to know about it. This is an act enacted by the National Assembly of Pakistan. This is one of the most important legislation that will have far-reaching consequences for the finance, tax, and banking sectors as well.
This brief summary is not expected to provide complete information about the law. However, the purpose of this note is to provide a basic understanding and adaptation to the current environment.
The sole purpose of this legislation is to prohibit holding property in ‘Benami’ (anonymity). The objective of this law is to:
- Prohibit possession of the property in Benami
- Restrict the right to transfer Benami properties
- Provide a mechanism to confiscate Benami properties.
Factors Accounting for the Origin of Benami Transaction
Benami transactions are generally undertaken to:
- Cheat and trick on creditors
- Fraud on creditors;
- Evade taxes; and
- Avoid social and political risk in holding property.
Significance and Relevance of Benami Law in Pakistan
In Pakistan, Benami transactions are usually done to park tax-free money and transactions. Accordingly, in such cases, the immediate and future, direct and indirect benefit of the property acquired from the tax-free amount goes to a person other than the person who appears to be the owner, when the acquisition of property is paid with an unpaid amount.
Beneficial rights are other than that of a person which appears as an outright right in the property. Anonymity also includes cases where the owner is fictitious.
In countries like Pakistan where withholding tax on property in Pakistan compliance is not strict and adequate, Benami transactions are used to park untaxed money in the form of Benami real estate, stocks, bank accounts, shares, and other forms of assets.
What is Benami law in Pakistan?
The law was introduced to provide rights to the government and to empower government agencies to identify Benami transactions and ‘confiscate’ anonymous property.
This is a step towards eliminating parking spaces and managing the proceeds from tax-free income. In the absence of anonymity laws, action may be taken against income that is not taxed, including property charges.
However, the state has no direct right to confiscate anonymous properties. The step was necessary because a large amount of non-taxable and money laundering assets have been kept anonymous and the state has no direct right to confiscate such assets.
This will help the government in its efforts to curb tax evasion and legalize the entire real estate industry.
It is worth mentioning here that under the ‘transfer of property’ laws, transfer of property in ‘Benami’ is not illegal. This new law will apply simultaneously in a particular context.
Benami is a Persian / Urdu word meaning “without a name”. In the context of property, it means the use and benefit by someone other than the person who appears to be the real owner, in form, without fiction or substance.
‘Benami’ Transaction as Per This Legislation means:
- When a property is transferred to or possessed by a person, the transaction or management of such property and its consideration has been provided or paid for by another person and the property is immediate or for the benefit of the future, directly or indirectly, the person providing the consideration;
- Transaction or management of the property under a fake name;
- A transaction or arrangement where the owner of the property denies ownership of the property and,
- A transaction or arrangement where the payer of the property is fake or undetectable.
Following transactions and arrangements have been excluded from the purview of Benami transactions and arrangements:
Properties held by a person in a fiduciary capacity;
The Properties acquired out of the known sources of income by an individual in the name of spouse or in the name of any child of such individual; and
Properties acquired in the joint name of an individual and his brother or sister or lineal ascendant or descendent and acquired from the known sources of income of the individual.
Any property held under a Benami arrangement or transaction is treated as ‘Benami property.