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 imparting justice complain of lack of facilities and huge number of cases, the complainants crying for early orders but have to wait for years (sometimes decades), and the revenue keeps worrying about the blockade of colossal amount of money in litigation process.
The present pathetic state of tax administration can be measured from the fact that every year over 25,000 writ petitions/appeals are filed in Pakistan against the orders of the tax authorities. Litigants have to wait for years to obtain orders. On the contrary, in civilised 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 appeals reaching the Lord Chancellor in a year number only around 30. This confirms the tremendous public satisfaction with the credibility of system and good governance by fiscal administration. In Pakistan, we have barely one million registered income tax payers and around 80000 sale tax registered parsons, but the number of appeals filed annually is in thousands.
At present, the taxpayer, if aggrieved, can file an appeal against the order of the Taxation Officer/Assistant Collector of Customs/Sales Tax before the Commissioner of Appeals/Collector Appeals who works under the administrative control of Federal Board of Revenue (FBR).
It is a mockery of justice that an important functionary in the hierarchy of the judicial system is directly subordinate to the Board of Revenue, which is the highest administrative authority under the Tax Laws. Everybody knows the problems of these worthy Commissioners of Appeals/Collector of Appeals (sic!). They are part and parcel of revenue collecting machinery.
They work as a strong arm of the 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.
All appellate authorities should be part of the judicial service working under the administrative control of the Honourable High Court. The present working of Tax Appellate Tribunals (dealing with direct and indirect taxes) under the Ministry of Law is against the principle of "independence of judiciary". The Tribunals as well as first appellate forum (Commissioner/Collector Appeals) should work under the High Court of their territorial jurisdictions. The same system is at present in vogue for civil judges/magistrates.
THE FOLLOWING AREAS OF TAX APPELLATE SYSTEM NEED IMMEDIATE ATTENTION:
-- Revamping of appellate structure
-- Independence from administration
-- Selection procedure of adjudicators/judges
-- Better remunerations and working environment
-- Prevalent Problems
-- Quality of adjudicators/judges
-- Selection of members of Tribunals by executive
-- Delays - due to heavy pendency or irrational distribution of work
-- Ineffective controls and poor management
-- Cumbersome and time-consuming procedures.
-- Objectives for change
-- Need for professional tax adjudicators/judges
-- No selection by an executive authority
-- Simple and cost effective procedures
-- Rapid disposal of cases
A reliable tax appellate structure can only be established if efforts are made to produce highly competent tax adjudicators at the level of first adjudication and Tax Appellate Tribunals. It will facilitate the process of selection of good judges for special tax benches in the High Courts. If the country lacks good nursery of tax adjudicators, tax appellate system will not work properly.
The Government should start reformation of tax appellate system from the very beginning, that is, proper training and grooming of first stage adjudicators. At present the following tax appellate system exists:
FIRST APPELLATE AUTHORITY [QUASI-JUDICIAL UNDER ADMINISTRATIVE CONTROL OF FBR]
-- Appellate tribunals [under administrative control of Law Ministry]
-- High Courts [judicial and independent]
-- Supreme Court [judicial and independent]
THE FOLLOWING STEPS ARE NEEDED AT VARIOUS APPELLATE STAGES TO REVAMP THE SYSTEM:
-- First Appellate Authority
-- Fixed tenure of at least 2 years in the capacity of appellate authority
-- Should be under administrative control of the Chairman Appellate Tribunal
-- Must be compelled to finalise cases within 3 months
APPELLATE TRIBUNALS "....the raison d'etre of establishing special tribunals has been to dispense better quality of justice where people, better trained in particular fields and disciplines could provide quality decisions and resolution of disputes.... Appointing members to these tribunals on political basis or who are otherwise incompetent or have doubtful integrity would prove completely counter productive....."--2000 PTCL CL 515.
"For the purpose of Article 203, there is no reason to give the term "courts" appearing therein any narrow or pedantic meaning so as to exclude judicial or quasi-judicial forums of administrative tribunals from its purview. If the appointments of appellate tribunals are also regulated and supervised by the judicial organ, it would also be in keeping with Article 203 of the Constitution. The Federal Government may consider, devise scheme or amendments whereby:
All existing appointments of members in all the appellate tribunals created under article 212 are placed before the Chief Justice of the province in which the members are performing their duties. The Chief Justice himself or any other Judge authorised by or committee appointed by him may look into such appointments to approve or disapprove the same, which would be binding on the Federal Government.
All future appointments in tax appellate tribunals are screened by the judicial organ of the State". In the light of principles decided by the honourable Sindh High Court in the above cited judgement, the following changes are also worth consideration vis-à-vis working of tax tribunals:
Control of tribunals should be with High Court rather than with the Ministry of Law. Selection of members be made by Chief Justice of High Court and before joining Judicial members should be familiarised with tax law/procedures. Advocates having tax litigation experience of at least 10 years at High Court level should only be considered. Technical members should be selected by High Court on the recommendation of Chairman of Tribunal.
There should be no reversion of tax officials to the department once they opt to work as accountant/technical members. In addition to revamping the existing tax appellate structures, there is an urgent need that the government reviews its links with businessmen and provide them a fast track dispute resolution system through section 33 of the Federal Tax Ombudsman Ordinance thus helping them instead of forcing them to enter into costly and time-consuming litigations 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 businessmen to predict with reasonable confidence the Revenue's attitude to an issue.
There will be times when a dispute is unavoidable but a mature relationship, built on mutual understanding and openness, should be capable of accommodating an element of business-like disagreement.
(The writers, tax lawyers and authors of many books, are members of visiting faculty of Lahore University of Management Sciences (LUMS).
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