THOUGH the government introduced the Alternative Dispute Resolution mode in tax disputes in 2004, it is as yet not the first choice of taxpayers.
The ADR was designed to clear the huge backlog of pending disputes, to minimise delay in redressal of taxpayers’ grievances and increase tax collection.
But it has not been a success. Pending tax disputes have multiplied in the past few years. More than 10,000 cases are currently pending before the tax appellate authorities while only four taxpayers have lately approached the Federal Board of Revenue (FBR) for the constitution of ADR committee. All federal taxes fall within the jurisdiction of ADR.
Taxpayers, especially the small ones, do not avail cost-free and ‘speedy resolution’ of tax disputes because of structural, procedural and administrative hiccups in the ADR, which make the system less attractive for them.
Through the Finance Act 2004, the aggrieved taxpayer was given an option to approach the FBR for the appointment of a committee for the resolution of any hardship or dispute. It was made obligatory for the FBR to constitute an ADR Committee (ADRC) within a period of 60 days after the receipt of the application from the aggrieved party. The three-member committee comprises a tax officer and two persons from the private sector.
The committee is required to make recommendations within a period of 90 days. If it fails to come up with the recommendations within the specific period, the FBR is empowered to dissolve the committee and re-constitute a new committee. The new committee is mandated to submit the recommendations to the FBR also within 90 days. And the FBR has powers to approve therecommendations or reject it altogether within a period of 45 days.
Currently, the ADRC is functioning as a recommendatory body and is not competent to pass any order. Many experts argue that the ADRC should have the authority to decide disputes as in the case of the appellant tribunal. The committee holds a series of meetings of taxpayers and tax collectors, and comes up with conclusive recommendations. Tax circles suggest that the ADRC should be empowered to decide disputes instead of functioning as a recommendatory body.
The scope of ADRC is also limited only to the cases involving grievances regarding assessment of tax dues. The cases that related toclaims of refunds and interpretation of question of law are excluded from the purview of the ADRC. As a result, a large number of taxpayers cannot avail the facility. The bulk of aggrieved taxpayers fall in these two categories. Many others approach the Federal Tax Ombudsman to seek redressal of their grievances and an early solution of disputes.
Even in limited number of cases, the FBR’s rejection of the ADRC recommendations adversely affects the neutrality of the subordinate formation. Also it makes the system less attractive for majority of taxpayers. Small traders and salary taxpayers are not availing the facility because of these and other factors. There is a need to give an independent and autonomous status to the ADRC.
The ineffectiveness of ADR is also attributed to lack of awareness among small taxpayers. But contrary to this, some big companies are availing the facility. To delay payment of taxes, some companies file appeal in the appellate body and then apply to the FBR for constitution of ADRC, some tax officials say. The whole process helps such taxpayers to delay the judgment at the appellate level.
This delay gives such companies a space of three months to delay payment of tax dues.
The response of taxpayers to availing the facility is much below the potential. On an average 20 cases are taken up for consideration by the ADRC every year. Of these, the cases of individual taxpayers are less than five per cent.
In short, the effective enforcement of ADRC decisions to dispose of tax disputes promptly can encourage investment, and also help reduce the pending cases at the appellate level.