The government has finally moved closer to enacting a law that will prohibit benami transactions and properties to qualify for a fag-end tranche of the $6.4bn Extended Fund Facility of the International Monetary Fund and formalise a part of the black economy.

The World Bank and the IMF have been persuading the government for decades to take concerted efforts against benami accounts, transactions and assets to expand the tax base.

In fact, part of the IMF programme in 2002-03 required introducing a law against benami accounts by October 31, 2003.

The government committed to a new structural benchmark: to prepare and submit draft legislation against ‘benami’ transactions, which are commonly used to evade taxes, to the national assembly by end-January 2016. The target was met and was replaced with another target to ensure enactment of this law by end-June 2016.

This target was missed and was replaced in June with another commitment to seek ‘approval by the National Assembly for the legislation against ‘benami’ transactions by end-August 2016’.

The draft law has been cleared by the Senate Standing Committee on Finance and is expected to go through the National Assembly before August 31. That would enable the disbursement of the last IMF tranche of around $102bn by end of next month.

The draft law has been cleared by the Senate Standing Committee on Finance and is expected to go through the National Assembly before Aug 31

Coupled with the recent steps for taxation of property transactions, the law against benami transactions will help in bringing a significant part of the informal economy into the tax net.

These two converging steps hold all the more significance given the inability of the provincial governments to have reasonable tax recoveries from the real estate sector. The success would, however, depend on fair implementation.

According to finance minister Ishaq Dar, property held benami is a source of concern to the tax authorities. Benami transactions have often been resorted to for furthering illegal or questionable objectives. The assets, which are bought through illegally-earned money, can be used for tax evasion, or something more serious like financing terrorism.

He said there was a strong realisation that the Benami transactions (prohibition) law was in operation in other countries of the region including India.

This bill, therefore, is meant to deal with the problem of tax evasion and black money, especially in the real estate sector; and to target transactions that are carried out in other people’s names, the minister said.

He further added that one of the major objectives of the proposed bill is to put an end to benami transactions, and empower the government to recover such property.

By defining benami transaction, the law seeks to prohibit all persons from entering into such transactions and ensure that if any person enters into a benami transaction in order to evade taxes or avoid payment to creditors, the ultimate beneficial owner and persons, who abet or induce any person to undertake such a transaction, suffer rigorous punishment.

The bill seeks to strengthen the law through empowering provisions prohibiting holding of property as benami and restrict the right to recover or transfer property held in benami.

It further seeks to establish Adjudicating Authority, set up an Appellate Tribunal, specify the penalty for entering into a benami transaction and set provisions for confiscation of benami properties.

Under the law, no person shall enter into any benami transaction from the date the law is passed; in case of doing so the individual would be punishable with rigorous imprisonment for at least one year, up to seven years, and liable to a fine extending to 25pc of the fair market value of the property.

The proposed law defines the Benami transaction as an arrangement where property is held by a person (other than in fiduciary capacity) on behalf of another person who has paid for it; or the transaction made for a property in a fictitious name; or the owner of the property not being aware of or denying knowledge of such ownership. This will not apply to transactions entered into by an individual in the name of his spouse, brother or sister, or any lineal ascendant or descendant.

The bill will not deal with past transactions, which means a one-time amnesty is in-built into the law. The adjudicating authority will consist of a chairperson and at least two members who are, or were, members of the Inland Revenue service, or any federal service, or a law expert.

All government institutions such as taxation, anti-narcotics, district officers, officials of the stock exchanges, the State Bank of Pakistan, Central Depository Company, National Clearing Company, police, all the civil armed forces, SECP and all other agencies or institutions would be required to assist the adjudicating authorities.

Adjudicating authorities would have the power to call in any information from the federal and provincial governments, local and other bodies, and authorities dealing with the registration of property or books of accounts, and will have the powers to impound any record in this regard.

The authorities would further have powers to attach or confiscate a property up to 90 days after assigning reasons in writing for suspecting a benami property.

To address grievances against such actions, the government would be required under the proposed law to establish Federal Appellate Tribunals to hear appeals. These tribunals would also comprise of a chairman and two members qualified to be a judge of the high court. The members would be experts on taxation.

The decision of the appellant tribunals could be challenged before a high court.

Published in Dawn, Business & Finance weekly, August 22nd, 2016