The Auditor General of Pakistan (AG) has recommended to the Federal Board of Revenue (FBR) to withdraw all wrong decisions taken by the Alternative Dispute Resolution Committees (ADRCs) which illegally facilitated the applicants involved in tax fraud cases and evasion of sales tax/federal excise.
A special study report on the ADRC has unearthed serious distortions and legal ambiguities in the ADRC and the decisions taken by such committees to illegally facilitate the applicants in disputed matters. This is a first of its kind of study where the AG office has found serious problems in FBR ADR system claimed to be one of the best to resolve tax disputes. The report highlighted that the government has suffered huge losses due to acceptance of wrong ADRC recommendations, whereas genuine cases were not timely processed. The FBR had not examined the most of applications filed under the ADRC on merits.
Interestingly, the FBR has never released ADRC findings and orders on the website to judge the authenticity of ADRC orders. The orders have been kept secret due to unknown reasons. However, the analysis of ADR orders by the AG office revealed that the FBR has accepted applications even in cases of tax frauds and evasion. The AG office in its performance audit of the ADRC mechanism report (2008-09) has identified huge losses to the due to the acceptance of the wrong recommendations of the ADRCs and some Rs 617.125 million losses have been reported in its report.
The FBR has repeatedly claimed that the ADR mechanism has been improved to resolve tax related disputes between the department and the taxpayers. Tax authorities have also claimed at different forums that the ADR procedure is a key step to reduce litigation. On the other hand, the special study of the ADR tells entirely a different story, exposing gross violations of rules and regulations relating to the ADR.
The performance audit of the ADRC of the FBR conducted by AG office revealed total failure of the ADRC mechanism and highlighted that the most of the decisions taken by the committees were against the laws, rules and regulations and without any end result in favour of national exchequer.
According to the recommendations of the report, the AG office has asked the FBR to examine the observations of the audit in the light of norms of prevailing laws and regulations and may withdraw the wrong decisions, which had created ambiguity in laws.
The AG office in its performance audit of the ADRC mechanism report has identified huge losses to the due to the acceptance of the wrong recommendations of the ADRCs and some Rs 617.125 million losses have been reported in its report.
In it's findings on ADRCs of the FBR, the AG office has said that main function of the ADRC is speedy disposal of the long outstanding disputes between department and taxpayers. However, most of the decisions were found below the optimum level and against the laws, rules and regulations and without any end result in favour of national exchequer.
The performance audit of the ADRC has pointed out that ADRC constituted by FBR were comprised of without suitable experts of laws and regulations and Committees had not considered the prevailing laws and regulations while deciding the cases.
The FBR had not examined the most of applications of taxpayers properly on merits, most of the applications or grievances of the taxpayers had not been found in the light of section 47 (A) (1) of the Sales Tax Act, 1990. Inconsistency in laws and decisions of the ADRCs had shown that matters were not consulted with experts seven in same cases ADRC decided the case without recommendations of the departmental representative. Numbers of decisions were found time barred which shows the slackness in getting fruitful results in time of making decisions of the cases. It also pointed out the FBR did not properly examine the recommendations of the committees at the time of acceptance or issuance of orders thereon, findings of Performance Audit disclosed.
The AG performance Audit report has recommended many measures for the improvement of ADRC mechanism and asked that at the time of acceptance of application, the grievances are to examine under provisions of law by the FBR and only those may be forwarded to the Committees, which are on merit. It will minimise the burden and rush of work of the committees. The Alternate Dispute Resolution Committees were to be consisted of experts of sales tax law and regulations. This will enhance the quality of the work of the committees. While constituting ADRC, instructions be issued to follow the provisions of law and rules relating to the subject to avoid usage of the decision as precedent for other taxpayers. Before enforcing the recommendations of the committees, the FBR authorities should examine the case carefully to avoid the creation of doubts in decisions under against the laws.
While citing some of the irregularities, the AG office has pointed out Rs 155.744 million loss of revenue due to the implementation of recommendations of irregularly constituted ADRC, Rs 54.013 million loss due to acceptance of undue recommendations, Rs 1.455 million loss due to undue orders of ADRC, loss of Rs 1.795 million due to beyond justification recommendations, Rs 3.947 million loss due to unjustified recommendations, Rs 21.747 million loss due to acceptance of undue application, Rs 11.072 million loss due to unjustified acceptance of application, loss of Rs 197.325 million revenue due to undue acceptance of application, Rs 0.419 million loss due to undue acceptance of application, Rs 6.074 million loss due to acceptance of wrong recommendations, Rs 137.167 million loss due to acceptance of recommendations based on misconceived facts, Rs 7.640 million loss due to acceptance of unauthorised recommendations, Rs 1.792 million loss due to acceptance of wrong recommendations, Rs 0.845 million loss due to wrong recommendations and Rs 16.090 million loss due to acceptance of recommendations based on misconceived facts.
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