Benami law vs income tax law: Perception and reality

It is said that perception is stronger than reality. Perception is what we perceive from our senses in the presence of certain level of consciousness. From our early childhood, our depository of notions continues to build up on the basis of hearsay and heuristics and we believe them with closed eyes till the time we come up with facts through empirical evidence.

Same is the case with currently developed notion by common man and even professionals that newly-introduced benami law imposes tax on a person. This belief is rooted in the cause that authorities implementing this law are from tax service more precisely Inland Revenue Service. If anyone asks this question whether it is true or false, the answer is second option.

The Income Tax Law administered by Inland Revenue Service under the umbrella of Federal Board of Revenue primarily deals with the imposition of tax on income on yearly basis. In certain situations, it also treats the assets of a person as income where sources of that asset are not explained. Tax is charged on income as a fraction of income.

For example, however, if the income is one million rupees in a year it may be charged as 15% of one million. In this example, the person retains the balance of 85% of his income with him and in case tax is charged to him on the basis of his unexplained assets he retains the assets with him but pays the fraction of amount as tax. This is a regular yearly engagement of a person with the tax authorities.

On the opposite side, the benami law which takes cognizance of those assets which have been kept in some other person’s name and not in the name of real owner. In such a situation, the whole of the asset goes to the federal government and the beneficial owner is deprived of his benami asset as a whole.

A billionaire may be doing business nationwide and accumulating assets worth billions of rupees yet he may not be required to pay anything under the benami law if he has not executed any benami transaction. If we want to proceed against him we shall have to first identify that that person has executed benami transaction (transaction in the name of others).

A person may be executing thousands of financial transactions in a year yet he cannot be proceeded under the benami law and charged for anything. The reason is very simple that the benami law deals with an offence and unless that person commits that offence he cannot be proceeded under the benami law notwithstanding the fact that he earns billions of rupees as income in a year.

Unlike tax law, where only a fraction of income is charged as tax, under the benami law the whole asset is confiscated and its ownership goes to the federal government and the beneficial owner is deprived of its property. It is falsely believed that in the benami law, sources of acquisition of assets need to be explained. In fact, under the benami law charge of executing benami transaction can only be levelled against the beneficial owner if he had the sources to pay.

If the beneficial owner did not have the sources to pay then how we can charge him that he has paid the consideration for a transaction executed in the name of others. In the benami law, there is only one instance where sources of funding of assets need to be explained.

Benami law provides certain exemptions to benami transactions which are in the name of spouse, children, brother or sister or lineal ascendant or descendant or joint owner in a document. In such exemption cases, the beneficial owner will have to prove that the asset has been acquired through known sources. In rest of the cases, keeping assets in other’s name is offence and a person despite having known sources for funding of the asset can be proceeded under the benami law.

So this misconception should be cleared right now for the reason that despite having tax paid, we cannot keep assets in other’s name as it is an offence. The sooner we come out of this misconception the better it would be for all of us as it would not only save us from future litigation disputes with benamidars but the legal heirs would also be on beneficial side in inheritance cases on left-over assets of the deceased.

(The writer is Commissioner Inland Revenue Benami Zone Islamabad)

[email protected]

Copyright Business Recorder, 2022