All About Benami Transaction Law in Pakistan

There has been a huge hue and cry over the Benami Transaction law in Pakistan. So, it is very important to know about it is. This is an act that has been put into effect by the National Assembly of Pakistan. This is one of the most important legislation that will have far-reaching consequences inter alia in the fields of finance, tax, and banking sectors.

This brief summary is not expected to provide complete information about the law; however, the purpose of this note is to provide a primary understanding and the relevance in the current environment.

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The sole purpose of this legislation is to prohibit holding property in ‘benami’ (anonymity). The objective of this law is to:

(a) Prohibit possession of the property in Benami;

(b) Restrict the right to transfer Benami properties; and

(c) Provide a mechanism to confiscate Benami properties.

Factors Accounting for the Origin of Benami Transaction

Benami transactions are generally undertaken to:

• Cheat and trick creditors
• Fraud on creditors;
• Evade taxes; and
• Avoid social and political risk in holding property.

Significance and Relevance of Benami Law in Pakistan

Benami transactions in Pakistan are generally undertaken to park untaxed money and transactions.  Accordingly, in such cases, the immediate and future, direct and indirect benefit of the property acquired from untaxed money lies with a person other than the person reflected as owner, whereas the acquisition of the property is paid out of untaxed money by the person holding beneficial rights other than the person who is reflected as having ostensible right in the property. ‘Benami’ 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.

This legislation has been introduced to provide the right to the Government and to authorize government institutions to identify Benami transactions and to ‘confiscate’ the properties held in Benami. This is a step to abolish parking spaces and regulate money generated from untaxed income. In the absence of Benami laws, there can be actions against the income that is not taxed, including charges over properties; however, there is no direct right of the State to confiscate the properties held in Benami. This step was essential as otherwise the huge quantum of properties created out of untaxed and black money are held in Benami and there is no direct State’s right to confiscate such assets. This will assist in Government’s efforts to curb tax evasion and legalize the whole real estate industry.

It is noteworthy here that under the ‘transfer of property laws, the transfer of property in ‘Benami’ is not illegal. This new law will have a concurrent application in a particular context. Benami is a Persian / Urdu language word that means anything ‘without a name’ or without bearing any name’. In the context of property, this means to use and benefit by a person other than the person who is fictitiously and without substance, in form, reflected as the real owner.

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‘Benami’ Transaction as Per This Legislation means:

1. When a property is transferred to or held by a person, the transaction or arrangement and the consideration for the such property have been provided or paid by another person ‘and’ the property is held for the immediate or future benefit, direct or indirect, of the person providing the consideration;
2. Transaction or arrangement in respect of a property carried out in fictitious name;
3. Transaction or arrangement where owner of property denies property’s ownership; and
4. Transaction or arrangement where the payer of consideration of property is fictitious or untraceable.

Except for 2 to 4 above, it is essential in all Benami transactions to prove two ingredients. the first condition is that the consideration has been paid or provided by a person other than the person who is the legal owner. Secondly, the immediate or future, direct or indirect benefit from that property lies with the person who has paid or provided the consideration not the person who appears, in form, as the owner.

The first part is a question of fact. The second is a difficult question that requires circumstantial evidence. Immediate and future benefits, directly or indirectly will have to be proved to be derived by the person who has provided the consideration not being the person who is owner on record As an illustration, if Mr. B, being a servant of Mr. A, acquires a house which is registered in th name of Mr. B and the consideration is paid by Mr. A. This transaction will not qualify to be called as Benami unless it is proved that the house is for immediate or future of real estate benefit directly or indirectly of Mr. A and not Mr. B. The second condition is essential to prove a Benami transaction.

Following transactions and arrangements have been excluded from the purview of Benami transactions and arrangements:

1. Properties held by a person in a fiduciary capacity;
2. 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
3. Properties acquired in the joint name of an individual and his brother or sister or lineal ascendant or descendent and acquired from the know sources of income of the individual.

Any property held under a Benami arrangement or transaction (including proceeds from suc property) is treated as ‘Benami property.