That the tax litigation system in Pakistan has long been afflicted by inordinate delays, bureaucratic hurdles, and a lack of transparency, hampering the fair resolution of disputes, eroding taxpayer confidence and imposing huge financial burdens on businesses.
In the latest bid to address the anomalies that mar tax litigation in the country, the legislature and the President of Pakistan have approved the Tax Law Amendment Bill 2024. Certain laws relating to taxes and duties under various sections of the Sales Tax Act, 1990 have been amended by the amendment bill.
Similarly, through the amendment bill, changes to various sections of the Federal Excise Act 2005, and the Income Tax Ordinance 2001 have also been made. Following the passage of the bill and the President’s assent to it, prime minister Shehbaz Sharif and finance minister Mohammad Aurangzeb held a meeting to discuss ways and means through which Rs2.7 trillion revenue that is stuck in courts/appeals can be recovered.
One of the major change that the law has introduced involves the curtailing of the authority of the Commissioner IR (Appeals) in handling appeals related to income tax, sales tax and federal excise duty.
Anyone with some understanding of how tax litigation plays out in the country would be at pains to understand how the reduction of cases at the level of Commissioner IR (Appeals) will help speed up the process of hearing appeals related to tax litigation.
As a report in this newspaper highlights, the Commissioner IR (Appeals) works directly under the administrative control of the Federal Board of Revenue (FBR) Member Legal.
This means that any decree of the FBR to the Commissioner IR (Appeals) – currently hearing 20,618 cases – directing the swift disposal of cases can help in substantially reducing their number, as the former’s instructions to the latter are legally binding.
Doing away with the Commissioner IR (Appeals) role for cases involving higher amounts, therefore, is inexplicable as the solution to the problem of the glacial pace of tax litigation at this level lies in the FBR’s hands.
The fact of the matter is that our bureaucracy excels at complicating matters by devising convoluted regulations and bureaucratic red tape that exacerbate already challenging situations. Many a government has been misguided by the bureaucracy into taking entirely needless measures that do not address the core issue at hand, and the amended law appears set to be another such endeavour.
It needs to be recognised that the FBR has contributed significantly towards creating the problem of time-consuming tax litigation. FBR field officers have been known to come up with exaggerated tax bills, which leads to the onerous appeals process that the government is now trying to rectify.
To make matters worse, the process of claiming tax refunds from the FBR is especially time-consuming and complicated. Apart from bureaucratic inefficiencies, there is often intentional obfuscation and excessive scrutiny on the part of field officers, which prolongs the refund process and creates unnecessary hurdles for taxpayers.
This inclination of field officers can be attributed to the pressure they are under to meet revenue collection targets as their performance reviews and promotions depend on meeting them.
And the substantial revenue collection targets they face stem from some well-established reasons: our narrow tax base, dismal tax-to-GDP ratio and rampant tax evasion. But the solution to the problem lies in not squeezing and needlessly making life difficult for existing taxpayers. It lies in devising measures that can lead to the expansion of the tax base.
But our tax bureaucracy and political governments find it more convenient to avoid the hard work and hard decisions that broadening the tax base would require. This latest legislation, therefore, appears set to be another in a long line of ineffective measures aimed at rectifying our broken tax system.
Saad Bashir Cheema (Islamabad)
Copyright Business Recorder, 2024
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