KARACHI: Aiming to stop black money especially in the real estate sector, government has introduced Benami Transactions (Prohibition) Bill, 2016 in the Parliament. The move came after several partially successful attempts to encourage/force documentation of economy, which includes the imposition of extra withholding tax on non-filers and revision in real estate valuation table.
The recently proposed bill could prove to be an effective tool to discourage black economy, which is in accordance with the government recent communication with the IMF and will help plugging black money, tax evasion and terror financing.
Benami means ‘anything without name’. In the bill, this means transactions that are made in names (benamidar) other than those of the owners (beneficial owner) without declaring, to hide the incidence of tax evasion and black money. The bill declares all benami transactions a punishable crime (imprisonment, fine or both) and all benami properties can be confiscated by the Government.
Though there are some doubts on Govt. ability/willingness towards unbiased and across the board implementation, it could route unaccounted money into the financial system resulting in improved documentation. After the Govt. documentation drive from past 3 years, the flow of funds accelerated towards heavens, instead of formal sector, in an attempt to avoid tax. This resulted in sharp increase in property valuations while the documented sector, including Pakistan Stock Exchange, experienced low turnover growth and lackluster local investors’ interest.
In the investment cluster available in Pakistan, analyst believes the documented sectors would be the major beneficiaries, which were previously at disadvantage due to government documentation drive. Investment flows from local investors towards Pakistan Stock Exchange could strengthen post implementation of the act as the KSE-100 offers handsome returns and has outpaced all major investment classes in last 10 years.