ISLAMABAD: In compliance with Lahore High Court directives, the government has restored the two-tier appellate system for income tax cases under the Finance Act 2025, strengthening taxpayer rights and judicial oversight.
Earlier this year, Justice Jawad Hassan of the LHC, while hearing a tax dispute petition, noted that the Tax Laws (Amendment) Act 2024 had eliminated one level of appeal previously available under the Income Tax Ordinance. He observed that this amendment would substantially increase the caseload at the high court, further straining limited judicial resources.
Justice Hassan also remarked that decisions by tax authorities often lack clear reasoning and legal references, exacerbating difficulties for taxpayers.
Effective July 1, the Finance Act 2025 has restored the Commissioner (Appeals) and the Appellate Tribunal Inland Revenue (ATIR) as mandatory appellate forums, regardless of the amount of tax involved. This change has replaced the controversial single-appeal system introduced in 2024, which had allowed taxpayers to bypass lower forums and file references directly in high courts.
The now-defunct system, introduced via the Tax Laws (Amendment) Act 2024, had eliminated appeals to the commissioner for cases exceeding specific monetary thresholds. Taxpayers could appeal directly to high courts against orders issued by the commissioner or ATIR. This led to a massive backlog in the high courts, with over 289 tax references filed in the LHC Rawalpindi bench alone within nine months.
In the landmark case of Mian Muhammad Akram versus the federation (2025 PTD 860), Justice Jawad Hassan in the verdict criticised the 2024 amendment for “clogging the arteries of the judicial system”. “Orders from Commissioners (Appeals) are often sketchy and lack reasoning, forcing high courts to remand cases repeatedly. This consumes valuable judicial time and delays justice.”
The judgement also highlighted structural flaws, including under-resourced tribunals — only seven benches across Punjab were handling tax references — discriminatory fee structures, and poor adjudication quality. It noted that members of ATIR and commissioners (appeals) frequently issued decisions with “inadequate reasoning” or in violation of procedural norms.
The Finance Act 2025 amends the Income Tax Ordinance 2001 to revive the two-tier appellate process. Under the new Act, taxpayers must now first appeal to the commissioner, followed by the ATIR. Only after exhausting these forums can they approach the high courts through a “tax reference”.
The Act also abolishes direct references to the high courts. By redirecting cases to specialised tax tribunals, high courts are expected to prioritise more complex legal matters.
Published in Dawn, July 5th, 2025
