Revised ADR mechanism: FBR may notify new rules to meet requirements

ISLAMABAD: The Federal Board of Revenue (FBR) is expected to notify the new rules to meet the requirements of the revised Alternate Dispute Resolution mechanism introduced through the Finance Act, 2020.

Experts told Business Recorder Tuesday that the new mechanism of dispute resolution had become non-functional at the moment as the rules that were in force were issued and were presently aligned with the law as introduced through the Finance Act, 2018, and did not conform with the law applicable with effect from July 1st, 2020, and the FBR would have to issue new rules meeting the requirements of the new law.

The experts have recommended that the FBR should issue new rules immediately and to notify panels from which members of the committee can be selected, if it has any intention to make the system of dispute resolution that has already been made less effective through the Finance Act, 2020.

They said that all tax laws administered by the FBR contain provisions for settlement of disputes between the taxpayers and the FBR through Alternate Dispute Resolution committees to be constituted by the FBR.

These committees provide an easy, cost effective and swift mechanism for resolution of tax matters. The normal mechanism of settlement of tax litigation between the taxpayer and the FBR is long drawn and the cases can continue to linger for years, and may go up to the level of the Supreme Court. This, not only is a headache for the taxpayers, who have to suffer substantial cost of litigation but the FBR also is unable to collect its legitimate revenues due to protracted litigation and stays of recovery. When it was introduced the alternate dispute resolution system yielded reasonable results but over the years its effectiveness was lost as the FBR had discretion to accept or reject the recommendations of the Alternate Dispute Resolution Committees or keep these pending for years.

The FBR, in an attempt to make the dispute resolution mechanism effective and to win the trust of the taxpayers in this system, proposed changes in the tax laws through the Finance Bill, 2018.

When the Finance Bill came up for discussion before the Senate Standing Committee on Finance and Revenue, the committee members headed by the eminent jurist Senator Farooq H Naek deliberated the proposed changes at length and proposed some further amendments to make the mechanism of dispute resolution credible and align it with the internationally accepted principles of arbitration.

The FBR and the government also accepted the proposals of the Senate Committee and the Finance Act 2018 substituted the legal provisions regarding the Alternate Dispute Resolution Committee on the basis of FBR proposals and recommendations of the Senate, tax experts said.

Under the changed law the Committee constituted on the request of the FBR was to have an officer of the department not below the rank of commissioner and a person nominated by the taxpayer from a panel notified by the FBR comprising of advocates, Chartered Accountants and reputable businessmen nominated by the Chambers of Commerce and Industry.

The above mentioned two members were required to select a retired judge not below the rank of District and Sessions Judge as the third member of the Committee, who would also be the chairman of the committee.

In other words, the FBR was no longer to have discretion to nominate all the members of the Committee and retired judges would become members and chairpersons of the committees notified by the FBR to make their working independent, transparent and judicious. Other changes such as fixing timelines for appointment of the committee, finalisation of its recommendations etc were also made. The decision of the committee was also made binding on the taxpayer and the FBR. In case the committee failed to reach a decision within the stipulated time period the matter would revert to the appellate authority.

The FBR was also required to make rules for the purpose of regulating the constitution of the committees and their working.

These rules were made and notified through SRO 69(I)/2019 dated 24th January, 2019 and the revamped system of Alternate Dispute Resolution mechanism became operational.

Due to unspecified reasons the legal provisions relating to Alternate Dispute Resolution were again changed through the Finance Act, 2020.

Important modifications include omission of retired judges from the committee, withdrawing the right of the taxpayer to nominate a member of the committee and substituting chief commissioner as the departmental member of the committee instead of the commissioner. "What is more striking is that the decision of the committee will not be binding on the taxpayer as he will be free to withdraw or not to withdraw his appeal pending before the appellate authority after the decision of the committee. Under the law enacted through the Finance Act 2018 the taxpayer was required to withdraw his appeal when the Alternate Dispute Resolution Committee was constituted by the FBR," tax experts opined.

The government or the FBR did not provide any cogent reasons for making these recent changes, which in the opinion of tax experts may compromise the effectiveness of the Alternate Dispute Resolution mechanism.

Copyright Business Recorder, 2020