The Federal Board of Revenue (FBR) recently enacted the benami law to address and combat the threat of tax evasion. It ensured transparency in property transactions. The law significantly impacts Pakistan’s financial system by increasing credibility and accountability.
In this blog, Graana.com, Pakistan’s smartest property portal, gives a comprehensive overview of the definition of a ‘Benami property,’ its types, and what Pakistani law says about it.
The real estate sector of Pakistan, has its own set of terminology and terms that can be particularly puzzling for newcomers. Initially only contractors, builders, real estate brokers, property experts, regulation lawyers, or officials involved in real estate matters could understand these terms.
According to FBR Spokesperson’s official statement, “A benami transaction occurs when a property [movable or immovable] is delivered to, or retained by, an individual and the appreciation for such property is paid by another person.”
Furthermore, the alleged owner is known as ‘benamidar.’ While real estate is called ‘benami property.’ The trustees of the real owner, such as wife, children, brother, or sister, are not considered benamidar.
In layman’s terms, a Benami payment is an arrangement in which a person buys an estate under a false name while the real owner is unaware of such possession or denies knowledge of it. A Benami transaction is one in which the person who provided the consideration isn’t really definite or completely fictional.
The tricky bit here is to understand which properties are Benami and which are legal. We’ll take a look at this below.
Benami assets can consist of both tangible and intangible assets. The FBR defines benami properties as real estate products such as plots, plot files, houses, shopping plazas, any housing schemes etc.
Bank accounts, vehicles, business shares, jewelry, foreign currency, and legal documents, in addition to real estate properties, fall under category of benami transactions.
On a related note, if you’re new to the property market, you can read our guide to investing in Pakistan’s real estate market.
The Benami Act primarily addresses the issue of tax evasion and money laundering. As the sole purpose of these laws is to create transparency in the buying and selling of real estate. This Act could significantly impact the real estate sector.
Furthermore, the law enhances the credibility of Pakistan’s financial system. The Benami law grants tax authorities vast powers. “The practise of holding benami property plays a significant role in enabling tax evasion. This aids in money laundering, and terror financing,” says Additional Director FBR.
The rules also state that the FBR will also endorse a guaranteed cash prize to whistleblowers for providing accurate information.
As per FBR’s explanation of the Benami Act, “Benami Transactions (Prohibition) Rules, 2019 have already been enforced with immediate effect. Moreover, BTB zones of Inland Revenue Service have been assigned to establish cases against benami properties. After that submit challan to Adjudication Authority within 120 working days.”
The report says, “sale, purchase, and transfer of property will be prohibited during the period of submission and approval until further orders are issued.”
Benamidar, can file an appeal with the Federal Tribunal against the Adjudication Authority’s decision. The Federal Government will confiscate and auction off such properties following the Federal Tribunal’s final decision [if the person is proven guilty].
If an accused benamidar is found guilty, he or she will receive 1 to 7 years in prison. On the other hand, if the informant makes false allegations, they receive six months to five years in prison sentence.
The whistleblower will receive a monetary award from the FBR. In addition, the person who reports Benami transactions to the authorities [the whistleblower] will be entitled to a cash prize if the provided information is credible and leads to the detection of Benami properties or benamidar.
The cash prize will be 5% of its value for a property worth Rs 20 lakh or less. For a property valued from Rs 20-50 lakh, the informer receives 4% of the property in question. If the property in question is worth more than PKR 50 lakh, the informer will receive 3% of its value.
To read more types of properties and rules governing their sales and purchase, visit the Graana blog.
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