The Federal Board of Revenue (FBR), quite recently, implemented the Benami law to address and curb the menace of tax evasion and create transparency in real estate transactions. The law also greatly benefits Pakistan’s financial system by inducing credibility and accountability.
In this blog, we will give you a comprehensive overview of the meaning of ‘Benami property’, then we will discuss the types of Benami properties, and what does the law of Pakistan say about them.
What does Benami Transaction Mean?
Similar to the real estate industries in various other countries, the vertical in Pakistan operates with its unique set of jargon and terms that can be particularly confusing for newcomers. There was a time when these terminologies were only understandable to contractors, developers, real estate agents, property experts, regulatory lawyers, or officials who deal in matters associated with real estate.
Thanks to Zameen.com – Pakistan’s personal property portal – most of us now have a better understanding of what’s what and how the real estate sector moves in the country. Continuing with the same efforts, here’s our attempt at helping you come to terms with ‘Benami’ transactions.
As per the official statement released by the FBR Spokesperson Hamid Ateeq, “a Benami transaction takes place when a property [moveable or immoveable] is transferred to, or held by, a person and the consideration for such property has been paid by another person.”
Additionally, the alleged owner of the property in question is known as ‘benamidar’ while the property in question is known as ‘Benami property’. The list of people who cannot be termed as benamidar excludes the trustees of the actual owner, such as wife, children, brother, or sister, to whom a property has been transferred to from known resources.
In simpler words, Benami transaction is an arrangement where a property is purchased under a false name, while the actual owner of the property is not aware of such ownership or denies the knowledge of it. Any transaction where the person providing the consideration is not definite or completely fictional is also referred to as Benami transaction.
Now, the part where Benami property becomes trickier to understand is when it comes to deciding which properties are legal and which ones are benami. We’ll help you understand this in the next part of this blog.
What does Benami Property Mean?
On the same occasion where the FBR defined Benami properties, the authority also explained the types of properties that can potentially come under the category of Benami properties.
As per Benami act defined by the Federal Board of Revenue, the type of Benami properties include real estate products such as plots, plot files, houses and apartments, shopping plazas, shops, or any housing schemes. Other than real estate properties, bank accounts, vehicles, business shares, jewellery, foreign currency, and legal documents can also fall under the category of Benami transactions in specific conditions.
On a side note, if you’re a beginner in the property market, read our guide to investing in Pakistan’s real estate market and become pro at property transactions.
What are the Objectives of Benami Transaction Rules?
As mentioned at the beginning of this post, Benami Transaction Rules (also known as Benami act) were introduced primarily to deal with the problem of tax evasion and money laundering. The Benami Transaction Rules could have a profound impact on the real estate sector since the sole purpose of these laws is to create transparency in the buying and selling of real estate.
Additionally, the law serves to increase credibility in Pakistan’s financial system. The Benami law gives enormous powers to tax authorities. According to the Additional Director FBR, “The practice of holding Benami property — moveable or immoveable — plays a significant role in enabling tax evasion, money laundering and terror financing.”
To strengthen the enforcement of the law, the Benami Rules state that the FBR will also endorse a guaranteed cash prize to whistleblowers for providing accurate information – we will discuss the terms in the latter part of this blog.
How Does Benami Property Rules Work?
As per the explanation of latest Benami act given by the Federal Board of Revenue, “Benami Transactions (Prohibition) Rules, 2019 have already been enforced with immediate effect and BTB zones of Inland Revenue Service have been assigned with the duty to establish cases against Benami properties and submit challan to Adjudication Authority within 120 working days.”
The report further states, “During the period of submission and approval, sale, purchase and transfer of property will be banned till further orders are issued.”
However, benamidar has the right to submit an appeal against the decision of the Adjudication Authority with the Federal Tribunal. After the final decision of the Federal Tribunal, [if the person is proven guilty], such properties will be confiscated and auctioned out by the Federal Government.
Legal Punishments Applicable on Benamidar
In cases where an accused benamidar is proven guilty, rigorous imprisonment of 1 to 7 years will be pronounced. On the other hand, if the informer has pressed false allegations and provided baseless information, they will also be sentenced to rigorous imprisonment of six months to five years.
What are the Benefits Given to Whistleblowers in Benami Transactions?
In cases of Benami transactions, the person who reports Benami transactions [the whistleblower] to the authorities will be entitled to a cash prize under certain circumstances such as the provided information is credible, and leads to the detection of benami properties or benamidar.
The cash prize is set to be five percent of the property if it’s worth PKR 20 lakh or less. On the other hand, if the worth of the property exceeds PKR 20 lakh and stays within 50 lakh, four percent of the property in question will be given to the informer. If the worth of the property in question exceeds PKR 50 lakh, three percent of its worth will be awarded to the informer.