THE concept of ‘alternate dispute resolution’ (ADR) implies making use of negotiation strategies like mediation, arbitration and conciliation to resolve disputes of varying nature among individuals and organizations without going to a court of law. It is not a new find for countries like India and Pakistan. It has been a centuries-old practice in rural and tribal areas of the subcontinent to resolve family and property disputes— in particular, through ‘panchayats and ‘jirgas’.
Despite easy accessibility to courts this crude system of dispute resolution still pervades tribal and rural areas. However because of various reasons, ‘panchayats’ and ‘jirga’ system have lost their utility mainly because they rest on the whims of tribal lords and waderas who want to dominate their communities.
The ADR approach saves an aggrieved party from hardship of going to courts which involves heavy expenses and very often consume indefinite time. Moreover, the phrase ‘Qanoon Andha hai’ is often found true in court decisions relating to oppressed and financially disadvantaged parties.
The term ‘ dispute resolution’ had actually developed in 70’s. The growth of economic and commercial activity throughout the globe and greater interdependence of nations on global trade, overseas employment and investments multiplied the number of cases in courts of law. Hence alternate dispute resolutions, which are generally based on mediation and arbitration, started gaining grounds in almost all the developed countries.
In Pakistan, strategies for resolving disputes without legal recourse has earned legal recognition for resolving family, property and commercial disputes by making provision for ADR in family and commercial laws and also in civil procedure code. Arbitration for resolving income tax disputes between individuals and income tax authorities and between organizations and income tax authorities has been allowed through insertion of section 134A in Income Tax Ordinance 2001 under the Finance Act.
ADR strategies as incorporated in Income tax ordinance 2001, through insertion of section 134A can be applied for resolving disputes relating to tax liability, refunds and waiver of penalty imposed etc. In this regard on application from aggrieved party, Central Board Of Revenue (CBR) constitutes a committee, which is consist of one Income tax officer and two members from approved panel of advocates, chartered accountants, income tax practitioner and reputed tax payers.
The committee members conduct intensive inquiry into the case and if need arises comprehensive audit is done to arrive at a decision. The decision / recommendations of the committee are then communicated to CBR for their final decision, which is normally in consonance with findings of the committee.
In case aggrieved person is not satisfied with the decision of CBR, he / she can file appeal in court of law or income tax tribunal. The cost involved in the process relating to travelling expenses, daily allowance and miscellaneous expenses is intimated to the parties of dispute and is equally borne by them.
The meetings of the committee are normally held in the office of concerned Income tax commissioner, but commissioner is allowed to perform his routine office work during the conduct of such meetings. The committee is required to proceed with the case strictly in accordance with guidelines issued by CBR for procedure to be followed. In terms of said section (134A) of income tax ordinance 2001, the committee may dispose of the case within 30 days from the date committee is constituted. However in view of complexity of a case, where committee needs further consultation from experts other than members of the committee, more time can be availed by giving reasons to CBR.
However, the ADR approach to resolve income tax issues needs improvement. The limited number of committees constituted for different areas are not enough to handle large number of applications within specified time. As such, the number of committees should be increased. Besides that, to eliminate chances of conflict of interest, conduct of meetings in office of Income tax commissioner should be discouraged.
To minimize number of income tax related disputes on permanent basis, it is essential that a problem-solving approach pervades the policymaking level. Economic managers while formulating taxation policy need to follow canons of taxation propounded by Adam Smith in letter and spirit. Main emphasis should be on fairness and equity while structuring tax system. The concept of equity / justice should exist in the system— both horizontally and vertically— to avoid anomalies.
No doubt, horizontal equity, if taken care of prudently, can satisfy taxpayers of similar financial status. However to ensure vertical equity where progressive taxation formula is applied for different levels of income, it is to be taken care of that final incidence of tax would not mitigate concept of equity at various levels of income.
The corporate tax giving leverage with regard to time period for payment of tax often results in delay in payment of tax, thus heavy penalties are levied and quantum of corporate tax disputes is accentuated. It is therefore advisable that like income tax, payment of corporate tax should also be made as soon as income is earned.
The disputes with regard to tax refunds form the main component of total tax disputes. As such policies and procedures with regard to refunds should be simplified by giving emphatic approach to hardship and injustice faced by tax payers, specially those falling in lower levels of taxable incomes.
Unlike ADR approach to resolve tax disputes, arbitration for resolving other commercial disputes has not been found very effective because of its mandatory provision in the law. Due to non-cooperative attitude of defending lawyer towards ADR system, cases remain undecided for quite a long time and aggrieved party is compelled to go to a court of law. As such, while inducting a lawyer in arbitration cases his / her track record should be taken into consideration.
