THE present tax dispute resolution system, based on conventional appeal and review system under various tax statutes, is not working efficiently.

Those who have to impart justice complain of lack of facilities and piling up of huge number of cases while the complainants have to wait for years, and are always worried about huge stuck-up amount of money in the litigation process. This calls for a fast track ‘ Alternate Tax Dispute Resolution System’.

The system should be re-designed for expanding the administrative means and ensuring informal mode for dispute resolution for all taxpayers.

The present system of Alternate Dispute Resolution [section 231A of the Income Tax Ordinance, 2001] cannot be called “fast track” as it is conventional and does not fulfil the time requirements.

Here, the Central Board of Revenue (CBR) can benefit from the American experience from IRS Restructuring and Reform Act of 1998. The salient features of IRS reform of a fast track ‘Tax Dispute Resolution System’ are:

A. Provision(s) covered: RRA § 3465. IRS Procedures Relating to Appeals of Examinations and Collections. Adds new I.R.C. § 7123.

B. Background: This provision addresses concerns on expanding the availability to taxpayers of administrative means for resolving disputes and ensuring the availability of appeals officers and appeals conferences for all taxpayers.

C. Change(s): This provision requires the Secretary to establish procedures for (a) early referral of disputes from Collection or Examination to Appeals, and (b) non-binding mediation of unresolved issues at the conclusion of appeals procedures, or unsuccessful attempts to enter into closing agreements or offers in compromise.

This provision further requires the establishment of a pilot programme for binding arbitration of unresolved issues. This provision also requires the Service to ensure that an appeals officer is regularly available within each state, and to consider videoconferences in rural or remote areas.

D. Impact: This provision should also increase the number of administratively resolved cases and correspondingly reduce the number of noticed and petitioned cases.

If the CBR wants to modernize it, the best first step can be to provide fast track mediation in tax dispute resolution. The following can be the salient features of fast track mediation tax dispute resolution system: * Fast track mediation can be offered to taxpayers universally without any conditionality. * The programme should be designed to assist in resolving tax disputes arising from an assessment, audit, raid etc. * Taxpayers may not give up any legal rights available under the statutes by using fast track mediation. The decisions under this mechanism should be subject to appeal, and any unresolved issue can move forward to another court of law.

The CBR can benefit from the published material of IRS titled Fast Track Mediation Public Procedures that provides an overview of the scope and process of this programme in USA and Fast Track Mediation Brochure, which highlights information on who qualifies, how to start, the mediator’s role, representation and unresolved issues.

In any society, the administration and dispensation of justice should be the top most priority. A society without a sound, reliable and speedy judicial system that does not ensure effective justice dispensation, cannot prosper for long. The administration and dispensation of justice under the various tax laws in Pakistan need serious attention.

The entire system is archaic. There is an urgent need to ensure “justice”, “rule of law”, “fairness”, “equity” and independence of appellate authorities from administration. The alternate informal tax resolution system on the pattern of Fast Track Mediation in USA, UK and EEC countries can be of immense help to improve the collection of taxes and restoration of public faith in our tax machinery.

Appellate authorities, as a matter of law and principle, should be independent in the true sense of the word. At present, the taxpayer, if aggrieved, can file an appeal against the order of the Deputy Commissioner of Income Tax (DCIT)/Assistant Collector of Customs/Sales Tax before the Commissioner of Appeals/Collector Appeals who works under the administrative control of Central Board of Revenue.

It is a mockery of justice that an important functionary in the hierarchy of judicial system is directly subordinate to Central Board of Revenue, which is the highest administrative authority under the Tax Laws. Everybody knows the attitude problems of these worthy Commissioners of Appeals/Collector of Appeals (sic!). They are part and parcel of revenue collection machinery.

They work as a strong arm of 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.

The judicial system under the tax statutes, or for that matter under any statute, should be completely and truly independent of administrative interference or control. It is an essential prerequisite for ensuring proper tax compliance and confidence of taxpayer in the system.

The present tax culture is based on “bad faith” between the taxpayers and the tax collectors. Both are victims of self-interest. This culture can only be changed if an effective judicial system is introduced and properly implemented. All appellate authorities should be part of judicial service working under the administrative control of the High Court.

The present working of Tribunal under the ministry of law is against the principle of “independence of judiciary”. The Tribunal as well as first appellate forum (commissioner/collector appeals) should work under the High Court of their territorial jurisdiction.

The present pathetic state of tax administration can be measured from the fact that every year over 75,000 writ petitions/appeals are filed in Pakistan against the orders of the tax authorities. The litigants have to wait for years to obtain orders.

In the developed 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 the number of appeals reaching the Lord Chancellor is only around 30 in a year. This confirms the tremendous public satisfaction with the quality of law and fiscal administration. In Pakistan, we have less than one million registered income tax payers but the number of appeals filed annually is in thousands.

In addition to revamping our existing tax appellate structures, there is an urgent need that the CBR reviews its links with businessmen and provides them a fast track dispute resolution system to save them from costly and time-consuming litigation in courts/tribunals.