The Tax Reform Commission (TRC) has strongly recommended that the Appellate Tribunal Inland Revenue and Customs Tribunal should be merged into a new entity, ie, national tax tribunal. The final report of the TRC submitted to the Federal Board of Revenue (FBR) revealed that after merging Appellate Tribunal Inland Revenue and Customs Tribunal, the new entity should be renamed as National Tax Tribunal.
The appeals against the orders of the Tribunal shall lie with the High Court. Irrespective of the fact of formation of National Tax Tribunal. It is recommended that the selection of members of the Inland Revenue and Customs Tribunal should be made through the Federal Public Service Commission (FPSC) and High Courts. It is considered that the Appellate Fora should be made independent from the formal/informal influence of FBR. The tax adjudication system must rest on fundamentals of independence, insulation and isolation from tax collection. The prosecution has to be separated from adjudication with gradual shift towards independence by transferring the adjudication system under the command and control of independent office or Ministry of Law or most preferable under the respective High Courts in conformity with section 10A of the Constitution. In transitional phase, transfer of tax officials to adjudication system should be based on option exercised by tax officials and there should be a bar on repatriation to the administrative function. In long term, there should be a separate process in place for appointments and career management in tax adjudication system.
The TRC recommended that Accountant member of the Appellant Tribunal Inland Revenue and the Technical members Custom Tribunal should be appointed through open competition by advertising the position of FPSC so that the Chartered Accountants and ICMA can also compete for these positions. The automatic filling of these positions by the officers of the FBR should be discontinued immediately. This step will go a long way in restoring the confidence of the taxpayers. The TRC recommended that this amendment in law providing for appointment of a officer of Inland Revenue in BS-20 or above who is Law Graduate as Judicial member should be immediately withdrawn. The TRC is of the view of that that Appellate Tribunal should be considered as the First level of appeal and then as a remedy tax courts/special benches should be established within High Court.
The current tax judicial system has failed to meet the minimal requirements of a neutral system for dispensation of justice that should enjoy trust and confidence of the taxpayers, thus require a complete overhaul. The existing system suffers from manifold maladies including:
At first level of adjudication/assessment, the disputed matters are adjudicated by the departmental officials. Most of these cases are initiated by the same officials or their colleagues working in the tax collecting organisation. It is unfair to expect them to dispense justice in such matters as neutral adjudicators, it said.
Tax collectors, with few noble exceptions, generally have an inherent revenue bias. They are assigned tax collection targets whose achievement or failure to do so determines the basis of their annual performance evaluation. How can they be expected to withdraw a tax demand no matter how unlawful it be? Tax officials do not receive any formal meaningful training in judicial/quasi-judicial processes and their pre requisites nor are they familiar with principles of statutory interpretation and a voluminous stock of case laws that they should be familiar with in order to do justice to their role as a judge.
The first appeal under the prevalent 4-tier appellate system lies before the Commissioner of Appeals/Collector Appeals working under the administrative control of Federal Board of Revenue (FBR). It is prima facie a travesty of justice in eyes of a taxpayer: an aggrieved taxpayer is to seek relief from the departmental authorities which could be susceptible to overt and covert pressures from FBR. The annual Performance Evaluation Reports (PER)-vital for further promotion in the service-of these Commissioner (Appeals) and Collector (Appeals) are written by their bosses in FBR. Due to this constraint, they cannot impart full justice. The recent perception of attempts by the FBR to influence the Commissioner (Appeals) and Collector (Appeals) have added to the distrust in the taxpayers in the first appeal forum.
The second tier is Tax Appellate Tribunal (one dealing with Customs and second with all other indirect and direct taxes) are under the Federal Government [Ministry of Law] which is against the principle of "independence of judiciary" as highlighted in Para 5, page 12 of NJP 2009. Working as single, double or full (in special cases) benches, members are chosen from the legal fraternity or judicial services (Judicial Member) and the tax department (Accountant Member or Technical Member). Accountant/Technical Members work with heavy heart in most of the cases as they are sent against their consent.