Bill to facilitate tax dispute resolution
A bill seeking to make alternative dispute resolution mode of tax disputes the first choice of taxpayers has been introduced by the Federal Board of Revenue in the National Assembly.
Taxpayers would be encouraged to opt for ADR by cutting short the current time consuming process. This will help the tax authorities reach out-of-court settlement of disputes.
As per proposed amendments to tax laws, recommendations of the committee, set up for resolution of tax disputes, will be either accepted or rejected within 45 days by the FBR.Through Finance Act 2004, an aggrieved taxpayer was given an option to approach the FBR for appointment of a committee for resolution of any hardship or dispute. It was made obligatory for the FBR to constitute an ADR Committee (ADRC) within a period of 60 days after the receipt of the application from the aggrieved party.
The three-member committee comprises a tax officer and two persons from the private sector.
Currently, the committee is required to make recommendations within a period of 90 days. If it fails to come up with recommendations within the specific period, the FBR is empowered to dissolve the committee and re-constitute a new body.
The new committee is mandated to submit recommendations to the FBR also within 90 days.
This long period that the committees took for making recommendations was a major hurdle for taxpayers availing out-of-court settlement. As a result, the ADR did not get popular among the taxpayers for resolving tax disputes, pending in courts for years.
More than Rs256 billion tax revenue is stuck in court cases. The proposed reduction in timing for completing the process is aimed at making the ADR attractive for settlement of disputes. It has been reported that over 6000 cases of tax disputes were pending in high courts.
The proposed amendment in the finance Act will also help the tax department and taxpayers save on wastage of resources and time spent on litigations.
FBR Senior Member Israr Rauf says in case the parliament approves the amendment, many taxpayers will opt for out of court settlement of their cases. The bill has been referred to the standing committee on finance for discussion and approval.
He elaborated: the bill seeks to amend the tax laws to provide an effective alternative dispute resolution mechanism to settle protracted legal disputes. ADR was designed to clear the huge backlog of pending disputes, to minimise delay in redress of taxpayers’ grievances and to increase tax collection.
But due to no specific deadline for resolving the cases, the ADR has not been a success. All federal taxes disputes can be dealt with through ADR mechanism.
Pending tax disputes have multiplied in the past few years. More than 10,000 cases are currently pending before the tax appellate authorities while only four taxpayers have lately approached the FBR for constitution of ADR committees.
Taxpayers, especially the small ones, cannot avail cost-free and ‘speedy resolution’ of tax disputes because of structural, procedural and administrative hiccups in the ADR mechanism.
The response of taxpayers to availing the facility is much below the potential. On an average 20 cases are taken up for consideration by the ADRC every year. Of these, the cases of individual taxpayers are less than five per cent.
Tax experts have pointed out a string of issues that make the ADR less attractive. The ADRC is functioning as a recommendatory body and is not competent to pass any order. They argue that ADRC should have the power of appellant tribunal to decide cases instead of functioning as a recommendatory body.
Similarly, the scope of ADRC is also limited only to cases involving grievances regarding assessment of tax dues. The cases relating to claims of refunds and interpretation of law are excluded from the ADRC purview. The bulk of aggrieved taxpayers fall in these two categories.