The Federal Board of Revenue (FBR) issued the Benami Transactions (Prohibition) Rules 2019 on March 11. With the implementation of the Benami Rules, the Benami Transactions (Prohibition) Act 2017, which was gazetted on Feb 17, 2017, became force.

The practice of holding benami property — moveable or immoveable — plays a significant role in enabling tax evasion, money laundering and terror financing.

The benami law has been implemented to deal with the problem of tax evasion and black money, especially in the real estate sector, to ensure that the ultimate beneficial owner and persons who abet or induce any person to undertake benami transactions suffer rigorous punishment; to enable tax authorities to seize benami property, including the proceeds from such a property, and to prosecute those indulging in such activities; to bring unaccounted for money into the system; to shut down channels for the flow of illicit funds, whether proceeds of crime or financing of terror activities; and to restore the credibility of Pakistan’s financial system.

Nonetheless, achieving the desired objectives from the benami law depends on the level of public awareness and understanding of the primary and secondary legislation.

The law gives enormous powers to tax authorities. Its careful implementation is necessary to prevent any abuse of power

The law prohibits a person from entering into a benami transaction in which a property is transferred to someone — a benamidar — but the consideration for such a property is paid by another person and the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration (the beneficial owner); a property transaction carried out in a fictitious name; a property transaction where the owner of the property is not aware of, or denies knowledge of, such ownership; or a property transaction where the person providing the consideration is fictitious or not traceable.

The law entails strict punishments for persons entering into benami transactions. Any person found guilty of the offence will be punishable with rigorous imprisonment of at least one year, which may extend to seven years, and a fine of up to 25 per cent of the fair market value of the property. Furthermore, any person or any officer upon furnishing false information or documents to any authority in any proceeding under the benami law will be punishable with rigorous imprisonment of at least six months, which may extend to five years, and a fine of up to 10pc of the fair market value of the property. However, instituting prosecution will require approval of the FBR.

It is equally important for the public to understand the authorities that are empowered to institute cases involving benami transactions under the said law. To implement its provisions, the commissioner of Inland Revenue will be the approving authority, the deputy commissioner of Inland Revenue will be the initiating authority of cases involving benami transactions, and the assistant commissioner of Inland Revenue will exercise powers and functions of an administrator. These authorities will report to the FBR that will notify their jurisdictions, powers and functions.

Moreover, the FBR will notify the adjudicating authority that will consist of a chairperson and at least two members and will have powers to regulate its own procedure. It will have the same powers that are vested in a civil court under the Code of Civil Procedure 1908 while trying a suit under the benami law.

To enforce any provision of the benami law, any authority will have full and free access to any premises, place, accounts, documents or computer without prior notice and will have powers to impound and retain such documents and record for three months. The initiating officer will have powers to attach provisionally benami property for 90 days and the adjudicating authority will have powers to confiscate the property held to be a benami property.

To dispense justice and protect rights of persons, the federal government will establish the Federal Appellate Tribunal to hear appeals against the orders of the adjudicating authority. The federal government will also notify or designate one or more courts of session as special court(s) for the trial of an offence punishable under the benami law.

It is worth mentioning that the transfer of property subsequent to the confiscation by the federal government will be null and void and the provisions of the benami law will have overriding effect over other laws. Any offence under the benami law will be non-cognisable. If an offence under the benami law is committed by a company, any person responsible for the conduct of the business of that company will deem to be guilty and liable to be proceeded against and punished accordingly.

To strengthen the enforcement of the law, the Benami Rules state that the FBR will also sanction a reward to whistleblowers for providing credible information leading to the detection of a benami property or benami transactions.

The benami law gives enormous powers to tax authorities. Its careful implementation is necessary to prevent any abuse of power. Therefore, necessary measures must be adopted to ensure reliable and credible implementation of this law.

The writer serves as additional director at the FBR.

Published in Dawn, The Business and Finance Weekly, March 25th, 2019