The institution of the federal tax ombudsman (FTO), which recently completed its three years’ existence, has proved to be an office effectively checking the excesses and maladministration of tax authorities in Pakistan.

However, the growing number of complaints and hostile attitude of the high-ups of the Central Board of Revenue (CBR) towards the recommendations made by FTO is a serious cause for concern. It appears that the CBR’s officials have found an easy way to avoid the implementation of the FTO’s recommendations by filing frivolous representations to the President under section 32 of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000.

The FTO’s recommendations are being set aside or suspended through executive orders of some official at the ministry of law, ostensibly acting on behalf of the President of Pakistan, is highly unjust and against the established doctrine of the due process of law that needs immediate attention of the people who matter in the land. If this practice is not checked, the day is not far when taxpayers will be further disillusioned.

The collection of taxes where it is not due is as deplorable as its non-collection where it is due. The CBR is doing exactly the opposite. It is not collecting taxes where it is due i.e. from civil-military bureaucracy, absentee landlords, corrupt politicians and unscrupulous businessmen.No mechanism exists for filing a complaint by public at large against the CBR with the FTO.

Presently, complaints are filed only by those taxpayers who are not willing to “cooperate” with tax officials. Data relating to number of complaints filed and disposed of by the FTO since its inception, given in the Table below, makes an interesting reading.

Taxpayers are now increasingly declining offers of tax officials for paying fixed percentage for obtaining refunds which they can get free of cost, courtesy the prompt and effective actions by the FTO. This has obviously haggard the CBR and its field organisations. In the new income tax law they have intentionally made even refund payments subject to order by commissioner. This will preclude, according to the interpretation of the CBR, the jurisdiction of FTO to hear any complaint under section 9(2) of the Ordinance because it will be an order subject to appeal. The FTO has already held that section 9(2) is not a bar to investigate any action or order which is palpably, deliberately and apparently unlawful and without any authority. These conflicting interpretations by the FTO and the CBR need remedial and curative amendment in law. The jurisdiction of the FTO is defined in section 9 of the Ordinance and the relevant parts read as under:

“Jurisdiction, functions and powers of the Federal Tax Ombudsman (1) Subject to sub-section (2), the Federal Tax Ombudsman may on a compliant by any aggrieved person, or on a reference by the President, the Senate or the National Assembly, as the case may be, or on a motion of the Supreme Court or a High Court made during the course of any proceedings before it or of his own motion, investigate any allegation of maladministration on the part of the Revenue Division or any tax employee.

“(2) The Federal Tax Ombudsman shall not have jurisdiction to investigate or inquire into matters which are:

a) sub-judice before a court of competent jurisdiction or tribunal or board or authority on the date of the receipt of a compliant, reference or motion by him, or

b) relate to assessment of income or wealth, determination of liability of tax or duty, classification or valuation of goods, interpretation of law, rules and regulations relating to such assessment, determination, classification or valuation in respect of which legal remedies of appeal, review or revision are available under the relevant legislation.”

The term “maladministration” is defined in section 2(3) of the Ordinance as under:

i. a decision, process, recommendation, act of omission or commission which is...:

a. contrary to law, rules or regulations or is a departure from established practice or procedure, unless it is bona fide and for valid reasons;

b. perverse, arbitrary or unreasonable, unjust, biased, oppressive, or discriminatory;

c. based on irrelevant grounds; or

d. involves the exercise of powers, or the failure or refusal to do so, for corrupt or improper motives, such as bribery, robbery, favouritism, nepotism and administrative excesses;

ii. neglect, inattention, delay, incompetence, inefficiency and ineptitude, in the administration or discharge of duties and responsibilities;

iii. repeated notices, unnecessary attendance or prolonged hearing while deciding cases involving: a. assessment of income or wealth; b. determination of liability of tax or duty; c. classification or valuation of goods; d. settlement of claims of refund, rebate or duty drawback; or e. determination of fiscal and tax concessions or exemptions. iv. wilful errors in the determination of refunds, rebates or duty drawbacks; v. deliberate withholding or non-payment of refunds, rebates or duty drawbacks already determined by the competent authority;

vi. coercive methods of tax recovery in cases where default in payment of tax or duty is not apparent from record; and

vii. avoidance of disciplinary action against an officer or official whose order of assessment or valuation is held by a competent appellate authority to be vindictive, capricious, biased or patently illegal.

A cumulative reading of the above two provisions support the view taken by the FTO that its jurisdiction does extend to matters where any action of the tax officials is arbitrary and void ab initio. It will be an ugly joke to say that the FTO cannot interfere in a matter of explicit illegality committed by a tax employee because the taxpayer has a right to appeal or other alternate remedy. Such an order itself testifies to the “maladministration” committed by tax employee.

There is an urgent need to give a proactive role to the FTO to help in settling disputes between taxpayers and the CBR through an informal mechanism. Not only will it take off lots of pressure from our higher courts but will also save time and money of both the taxpayers and the CBR. There are certain areas where the FTO needs to expand its role e.g. section 33 of the Ordinance. This section reads as under:

“Informal resolution of disputes. -

(1) notwithstanding anything contained in this Ordinance, the FTO and authorized Staff Members shall have the authority to informally conciliate, amicably resolve, stipulate, settle or ameliorate any grievance without written memorandum and without the necessity of docketing any complaint or issuing any official notice.”

The most neglected area regarding expansion of FTO’s role is lack of any research to find out the causes of corrupt practices and injustices as envisaged in section 9(4) of the Ordinance. The main objective behind establishing the office of the FTO was “to diagnose, investigate, redress and rectify any injustice done to a person through maladministration by functionaries administrating tax laws”. Individual complaints are only symptoms indicating malfunctioning of the system. The FTO is duty bound to redress and rectify injustice caused to each individual/entity on a complaint or by taking suo moto action. However, it should not confine itself to merely treating symptoms and ignoring the main causes of malfunctioning.

The more complaints the FTO receives, the more badly it reflects on the performance of the CBR. These two institutions should strive hand in hand in making the system credible, which will be gauged by the gradual decrease in the number of complaints in the future. The FTO’s more proactive, meaningful and beneficial role is mentioned in section 9(4) of the Ordinance which reads as under:

“For carrying out the objectives of this Ordinance and, in particular for ascertaining the causes of corrupt practices and injustice, the Federal Tax Ombudsman may arrange for studies to be made or research to be conducted and may recommend appropriate steps for their eradication.”

The more formidable challenge before the FTO, the CBR and the State is to eradicate causes of corrupt practices and injustice for which complete overhauling of the tax apparatus is a prerequisite. First of all, tax officials deserve a fair deal and thereafter the most effective system of accountability should be enforced. On the other end, the taxpayers should be given a Charter of Rights, facilities, justice and legal protection and thereafter an exemplary system of punishment for tax evasion needs to be introduced.

Besides the relationship of mistrust between the taxpayer and tax machinery, another problem with Pakistan is vested interest of the ruling class to make tax laws beneficial to its members and cumbersome for the masses. In this regard the FTO can play a role by suggesting to the President to provide adequate checks against the lawmakers under Article 162 of the Constitution before they pass any law against public interest.

On the recommendation of the FTO, the President may constitute an independent body e.g. Citizens for Tax Justice (CTJ). CTJ’s mission would be to give ordinary people a greater say in the development of tax laws and protecting them against the armies of special interest lobbyists e.g. absentee landlords, big corporations and the wealthier sections of society. CTJ would fight for:

* fair taxes for middle and low-income families;

* requiring the privileged and mighty to pay their fair share;

* plugging corporate tax loopholes;

* adequately funding important public services;

* reducing federal debts; and

* tax policies for rapid industrialization, creation of job opportunities and minimizing distortion of economic markets.

All the stakeholders should work jointly to strengthen the institution of the FTO, which alone can act an effective watchdog because of its independent status and financial autonomy. It can also serve as the best forum for informal dispute resolutions between tax officials and taxpayers. The CBR should cooperate with the FTO in this regard. The FTO can also create public awareness to safeguard the interests of masses against formulation of any fiscal policies by vested interest and ruling elites. If we wish to join the rank of civilized countries, institutions like the FTO should be respected and strengthened.