THE office of the Federal Tax Ombudsman (FTO) was carved out in the year 2000 of the office of the Wafaqi Muhatasib which was established in 1983. The FTO specializes in, and covers, only the malpractices indulged in by functionaries who administer the federal tax laws.
The necessity to so legislate appears to have arisen when it was found by the Wafaqi Muhtasib (Ombudsman) that in spite of lot of complaints in the media, the number of these complaints made to him in respect of tax matters was minimal compared to other governmental agencies for, according to him:
(a) corruption in the tax departments is mutually beneficial, for the taker and the giver;
(b) factors of corruption are too deep-rooted to be traced suo moto by ombudsman or his staff;
(c) in fact the giver of bribe himself is the real and substantial beneficiary, the taker is less exposed to be brought to book. The real loser is the exchequer, which is betrayed by its own servants, who in due course of time have become inefficient by virtue of ‘recruitment policy’.
It is interesting to quote the figures of a survey conducted by a private agency of corruption prevailing in the federal tax administration and published in Dawn (Dec 11,2001). The findings of the survey are given in the following table:
Share in Income tax Sales tax Customs
tax evasion
Tax payers 38% 28% 23%
Tax collectors 16% 11% 15%
Tax practitioners 10% 06% 10%
Total 64% 45% 485
Conscious of the mischief of tax evasion inherent in the law, the legislature provided quasi-judicial administration instead of strictly an ‘executive’ on the one hand, or ‘judicial’ on the other. Accordingly in the Income Tax Act, 1922, two immediate supervisory posts were created over income tax officials; the Appellate Assistant Commissioner, to provide relief to grievances of tax-payers on points of facts and law, arising out of assessment orders, and the interchangeable post of inspecting Assistant Commissioner, to safeguard revenue losses that may be caused by ITOs, wilfully or otherwise. In fact, this administrative structure as well as the judicial safeguard against maladministration on the part of functionaries under the law, is the main tool for enlightened public administration. It is for this reason that the most technical and intricate piece of legislature, as the law of income tax is, could survive in post-British India period. After the dissolution of the British empire, the law is gaining roots deeper and deeper, both in India and Pakistan. Conscious of the repercussions of direct taxes and the brunt thereof borne by the assessee, remedial machinery was provided in the form of Appellate Tribunal in 1939, as an impartial autonomous body. It was placed under the charge of the ministry of law, like superior courts,instead of the finance ministry, which holds charge over its counterpart, the CBR. It was meant to give complete satisfaction to tax-payers of their liability being adjudicated upon impartially, expeditiously and informally by competent officers.
On close scrutiny of the nature of the law of income tax, it would be realized that taxing income of ‘previous year’ during the next assessment year is neither simple nor easy. To accomplish this uphill task, innumerable reconciliatory measures have to be taken every year, in keeping with the prevailing macro economic conditions and growth of the society. Court’s jurisdiction was specifically ousted by virtue of the Section 67.
Any tax, by its very nature, requires the most efficient and conscientious administrative machinery, on the one hand, and responsive patriotic taxpayers, on the other. Both of them have to be equally enlightened, working in cooperation, instead of being diametrically opposed and inimically disposed, to each other; assessor regarding the assessee as an obdurate tax-dodger and the assessee, likewise, fearing and suspecting the assessor as a butcher. On analyzing the statistics of direct and indirect tax proportions, it is seen that the ratio of direct taxes vis-a- vis indirect taxes is much higher, say 45 per cent to 80 per cent in advanced democratic countries, compared to 15 per cent to 25 per cent in developing backward countries of the third world.
Though a preamble, for the purposes of interpretation of any statute, does not constitute its integral part,yet it most definitely provides the mile-stone in understanding the background and objectives of the statute. Having a glimpse on the preamble of the Ordinance XXXV, 2002, it may be observed that it is intended to diagnose, investigate, redress and rectify any injustice done to a person through maladministration by functionaries administering federal taxes. This preamble draws one’s attention to the term ‘maladministration’, for its pre-existence is a condition for invoking the jurisdiction of the FTO.
This term is inconclusively defined in section 2(3). Its dictionary meanings are, “bad, poor or dishonest management of public affairs or public dealings’ etc. Besides these literal meanings of the term, such a large number of other meanings have been enumerated in its definitions that had their applications not been qualified by certain conditions and situations, the entire administration of federal taxes must have collapsed like the house of cards. Seldom before, the legislature had been so liberal in defining the term ‘maladministration’.
Perhaps it is so done to warn functionaries that their every act in the performance of duties could be liable to overseeing by the FTO. The following matters are worth mentioning:
Clause (iii) “repeated notices, unnecessary attendance or prolonged hearings while deciding cases. “‘Should this clause be not qualified with underlined certain adjectives, it would become difficult for a tax functionary to escape entanglement. It is important to bear in mind that functionaries, under certain circumstances, as a matter of duty, have to do all these things to safeguard the loss of revenue at the hands of tax evaders.
Clause (iv) “wilful errors in determining the refunds”. This clause also relates to human nature “to err.Had it not been qualified by the word ‘wilful’, it could have put the cart before the horse. Clause (v) “deliberate withholding or non-payment of refunds, rebate or duty drawbacks already determined by the competent authority:” This clause also relates to the reluctance of tax functionaries to issue refunds, rebates or duty drawbacks. For any loss caused to the exchequer, by any chance, would stigmatise his entire career. They are trained, therefore, ‘to err on the safer side’. Had this clause been not qualified by the word ‘deliberate’, every tax functionary, in doubt, would have chosen to violate this clause, rather than take the risk of causing thoughtless loss of revenue, never to be retrieved.
Clause (vi) “coercive methods of tax recovery in cases where default in payment of tax or duty is not apparent from record:” This is another nerve-breaking provision describing the definition of ‘maladministration’. Though the intention of the legislation is pious in preventing harassment of an honest tax-payer, there may arise genuine situations in which a functionary must sometimes take coercive measures for the recovery of arrears of which he is satisfied of losing altogether if not proceeding at once even though the default may not be glaring on the record.
Such are the most crucial numerous situations in the recovery of taxes, which have to be handled with great caution, failing which they could demoralise dutiful functionaries. This provision, like others, must be qualified by the adjective “unwarranted”. Coercive measures are all retraceable and can be stayed immediately on production of evidence of payment or non-existence of tax liabilities. Clause (vii) “avoidance of disciplinary action against an officer or official whose order of assessment or valuation is held by a competent appellate authority to be vindictive, capricious, biased or patently illegal:” This is the real and material clause to be retained.
However, this clause may further be added with clause viii proposed to read: “any loss of revenue deliberately caused and later on retrieved by competent authorities escaping disciplinary action against officer concerned.”
Let us now proceed to analyse the implications of another important provision, that is, Section 9 relating to the ‘jurisdiction functions and powers of the federal tax ombudsman’: Sub-Section (1) empowers the FTO to investigate any allegation of maladministration on the part of the Revenue Division or any tax employee on a complaint by (a) any aggrieved person; (b) reference by the President, Senate or the National Assembly; (c) on a motion of the Supreme Court, or (d) of his own motion.
This generalised jurisdiction conferred upon the FTO is restrained and qualified by the sub-section (2). The date of invoking jurisdiction is very material, for on such date the matter must not be ‘sub judice’ before any court of competent jurisdiction, or Tribunal or Authority or Board. It is so done to avoid duplication of proceedings in the same matter before two different forums, independent of each other.
In fact, this provision is made to keep normal statutory jurisdiction of different authorities provided within the Fiscal Statutes intact and undisturbed by the overseer’s jurisdiction of the FTO confined to matters of ‘maladministration’ only and not to allow it to transgress into matters of genuine differences of opinion in the charge and application of the fiscal statute, for otherwise it would create irreconcilable conflicts in the administration of the tax statutes which is the very delicate concern of the State.
Accordingly the Clause (b) of sub-section (2) further debars categorically the entire jurisdiction of the FTO in matters in respect of which legal remedies of appeal, review or revision are available under the relevant legislation. On analysis of this sub section (2) it becomes per se clear that what is given in general terms in sub-section (1) is taken away by another hand.
It becomes clear, without any manner of doubt left in the language of law, that the jurisdiction of the FTO is:
(i) in the nature of an overseer; (ii) that it can be exercised only if the administration of tax statues is found bad, poor or dishonest; (iii) that he cannot look into even matters of maladministration, if those are sub-judice before other competent authorities at the time of complaint is made to him, and (iv) that lastly the complainant may go to the FTO only when all legal remedies available to him in tax statutes, are exhausted.
It is manifest by now that only the residuary purely administrative matters, unassailable before any forum, are left to his jurisdiction to be investigated, provided they suffer from maladministration. Thus a sharp-edged jurisdiction is provided to the FTO for mere recommendation of action on his findings. It is thus established that duplication of proceedings in respect of the same matter even within the definition of the term maladministration is expressly excluded on two forums: the one being the normal procedure provided within the fiscal statutes and the other relating to the jurisdiction of the FTO.
Had it not been wisely done, administration of fiscal statutes would be paralysed to the great detriment of public exchequer and functioning of the government. The sub-section 4 extends the vistas of the Federal Tax Ombudsman’s jurisdiction to the realm of arranging studies and conducting research for ascertaining the causes of corrupt practices and injustice and, like any other advisory consultative commission, recommend appropriate steps for their eradication. This indeed appears to be the real jurisdiction and function assigned to the FTO by the legislature.
While confining jurisdiction of the FTO strictly to ‘administrative matters’ having no remedy of appeal, review or revision, within the relevant fiscal statute, and not empowering him, even under such limited scope to provide any effective remedy or direct redress to the aggrieved complainant and instead keeping him competent merely to recommend action against tax employee found guilty of maladministration, the legislature has tried to maintain the ceremonial dignity of the FTO, by inserting Section 12 which provides for ‘defiance of recommendation’.
Defiance for reasons recorded by the Revenue Division is also not directly punishable by the FTO, who in such cases, may merely forward his recommendations to the President, who, in turn, may ask the Revenue Division, to comply with and implement the recommendations of the FTO under intimation to the latter. He thus functions like a “complaint cell” in any organization.
Many do not see with eye to eye even with the very creation of the office of the FTO, for they argue that administration of any tax statutes cannot afford the luxury of being overseen, supervised or interfered with by any external agency, whosoever it may be and whatever amount of maladministration in taxation may be prevailing. Unlike other governmental activities and administrative affairs of their agencies, imposition and collection of taxes is entirely different in nature and character.