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Review of CBR’s links with business

Need for fast track ‘Dispute Resolution System’

 Dr. Ikramul Haq

Dr. Ikramul Haq, a leading international tax counsel, is a well-known author specialising in international tax, press, intellectual property, corporate and constitutional law. Dr. Ikram is Chief Partner of Lahore Law Associates (fax: +92 42 6365584, e-mail: irm@brain.net.pk; website: http://www.paktax.com.pk). He is a member of the visiting faculty of the Lahore Institute of Tax Education (LITE). He studied literature, journalism and law, for his Masters and Doctorate degrees. He has written many books on various aspects of Pakistani law and global narcotics trade, some of which are co-authored with his wife, Mrs. Huzaima Bukhari.

It is vital for the Government’s tax reform strategy that the administration of the tax appellate system keeps pace with the changing business environment and the legislative programme, so that it is forward looking and business supportive. The Government should undertake a significant programme of modernisation of the tax appellate system, aimed at creating the best possible way of resolving disputes between the taxpayers and the tax collectors. The main aim of all tax reform measures should be promotion of investment and facilitating decision making that is driven by commercial factors rather than by tax considerations.  The principles underlying tax reforms should not be forcing unnecessary obligations of taxpayers, but to help them boost economic activities that would automatically lead to generation of more revenues. Secondly, the reforms of any kind imposing new obligations should be imposed after consulting the business community and securing their consent.

The present tax dispute resolution system, based on conventional appeal and review system under various tax statutes, is on the verge of collapse. Everybody is totally dissatisfied with it. Those who have to impart justice complain of lack of facilities and huge number of cases, the complainants cry for early orders but have to wait for years (sometimes decades), and the revenue is always worried about the blockade of colossal amount of money in litigation process. There is thus an urgent need to provide a fast track ‘Tax Dispute Resolution System’ aimed at:

  • expanding the availability to taxpayers of administrative means for resolving disputes, and
  •  ensuring the availability of  informal tax dispute resolution system for all taxpayers.

The Central Board of Revenue (CBR) can benefit from the US experience in this regard that was in the form of IRS Restructuring and Reform Act of 1998. The salient features of IRS reform re a fast track ‘Tax Dispute Resolution System’ are:

A. Provision(s) covered: RRA § 3465. IRS Procedures Relating to Appeals of Examinations And Collections. Adds new I.R.C. § 7123.

B. Background: This provision addresses concerns regarding (1) expanding the availability to taxpayers of administrative means for resolving disputes and (2) ensuring the availability of appeals officers and appeals conferences for all taxpayers.

C. Change(s): This provision requires the Secretary to establish procedures for (a) early referral of disputes from Collection or Examination to Appeals, and (b) non-binding mediation of unresolved issues at the conclusion of appeals procedures, or unsuccessful attempts to enter into closing agreements or offers in compromise. This provision further requires the establishment of a pilot program for binding arbitration of unresolved issues. This provision also requires the Service to ensure that an appeals officer is regularly available within each state, and to consider videoconferences in rural or remote areas.

D. Impact: This provision should also increase the number of administratively resolved cases and correspondingly reduce the number of noticed and petitioned cases.


If the CBR wants to modernize it, the best first step can be to provide fast track mediation in tax dispute resolution that is going to restore its much-tarnished image in the eye of the public in general and taxpayers in particular. The following can be the salient features of fast track mediation tax dispute resolution system:

  • Fast track mediation can be offered to taxpayers universally without any conditionality.
  • The program should be designed to assist in resolving tax disputes arising from an assessment, audit, raid etc.
  • Taxpayers may not give up any legal rights available under the statutes by using fast track mediation. The decisions under this mechanism should be appealable, and any unresolved issues can move forward to another court of law.

The CBR can take further help in this regard from the published material of IRS titled Fast Track Mediation Public Procedures that provides an overview of the scope and process of this programme in USA and Fast Track Mediation Brochure, which highlights information on who qualifies, how to start, the mediator’s role, representation, and unresolved issues.

In any society, the administration and dispensation of justice should be the top most priority. A society without a sound, reliable and speedy judicial system that does not ensure effective justice dispensation cannot survive for a long. The administration and dispensation of justice under the various tax laws in Pakistan need serious attention. The entire system is now at the brink of disaster. There is an urgent need to ensure “justice”, “rule of law”, “fairness”, “equity” and independence of appellate authorities from administration. The alternate informal tax resolution system on the pattern of Fast Track Mediation in USA, UK and EEC countries can be of immense help to improve the collection of taxes and restoration of public faith in our tax machinery.

Appellate authorities, as a matter of law and principle, should be independent in the true sense of the word. At present, the taxpayer, if aggrieved, can file an appeal against the order of the Deputy Commissioner of Income Tax (DCIT)/Assistant Collector of Customs/Sales Tax before the Commissioner of Appeals/Collector Appeals who works under the administrative control of Central Board of Revenue. It is a mockery of justice that an important functionary in the hierarchy of judicial system is directly subordinate to Central Board of Revenue, which is the highest administrative authority under the Tax Laws. Everybody knows the attitude problems of these worthy Commissioners of Appeals/Collector of Appeals (sic!). They are part and parcel of revenue collection machinery. They work as a strong arm of assessing officers/collectors and their fellow field Commissioners/Collectors, who are assigned with budgetary targets. The genuine appellant, victim of arbitrariness of the DCIT/Assistant Collector, cannot get any relief unless he pays “due” share to the first appellate authorities.

The judicial system under the tax statutes, or for that matter under any statute, should be completely and truly independent of administrative interference or control. It is an essential prerequisite for ensuring proper tax compliance and confidence of taxpayer in the system.

The present tax culture is based on “bad faith” between the taxpayers and the tax collectors. Both are victims of self-interest and their main aim is to cheat each other. This culture can only be changed if an effective judicial system is introduced and properly implemented. All appellate authorities should be part of judicial service working under the administrative control of the Honourable High Court. The present working of Tribunal under the Ministry of Law is against the principle of “independence of judiciary”. The Tribunal as well as first appellate forum (commissioner/collector appeals) should work under the High Court of their territorial jurisdiction. The same system is presently in vogue for civil judges/magistrates.

The present pathetic state of tax administration can be measured from the fact that every year over 75,000 writ petitions/appeals are filed in Pakistan against the orders of the tax authorities. The litigants have to wait for years to obtain orders. On the contrary, in the civilized countries, only a few cases go for litigation to higher courts. A case in point is the United Kingdom where the number of income tax payers alone is 30 million whereas the number of appeals reaching the Lord Chancellor is only around 30 in a year. This confirms the tremendous public satisfaction with the quality of law and fiscal administration. In Pakistan we have less than 1 million registered income tax payers but the number of appeals filed annually are in thousands.   

In addition to revamping our existing tax appellate structures, there is an urgent need that the CBR reviews its links with businessmen and provide them a fast track dispute resolution system thus helping them instead of forcing them to enter into costly and time-consuming litigation in courts/tribunals. Taxpayers, especially huge transnational corporations and foreign investors, want certainty on the tax treatment of transactions as quickly as possible (and preferably in real time).  Closely related to this is a desire for transparent processes that enable business to predict with reasonable confidence what the Revenue’s attitude to an issue will be.  There will be times when dispute is unavoidable but a mature relationship, built on mutual understanding and openness, should be capable of accommodating an element of business-like disagreement. To achieve this goal the CBR needs to introduce a fast track dispute resolution system without any further delay.

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