Resolving disputed claims: TRC recommends Federal Tax Ombudsman be given duty

Complex laws, poor assessment orders, audit objections causing issues

ISLAMABAD: As the volume of disputed claims crosses Rs300 billion, the Tax Reforms Commission has recommended that the responsibility of imparting justice should be given to the Federal Tax Ombudsman.

The recommendation comes after the TRC’s findings showed that taxpayers have lost trust in the Federal Board of Revenue’s (FBR) administered dispute resolution mechanism.

“Complex and rapidly changing tax laws, aggressive assessments, audit objections and poor quality of assessment orders are the main reasons behind growing number of tax disputes in Pakistan,” showed the TRC’s findings.

The federal government had constituted the commission to identify flaws of the present tax regime and make it simple to improve tax compliance and revenue enhancement.

However, implementation remains a litmus test in determining how far the government is willing to pursue tax reforms.

The report also discussed in detail the ‘Alternate Dispute Resolution Mechanism’, its failure and the future course of action. “The taxpayers have lost confidence in the dispute resolution mechanism under direct control of the FBR”, noted the Commission in its final report.

“The FBR estimates that at present, taxes and duties worth Rs300 billion are stuck up in litigation”, states the report - a figure that is grossly underestimated.

According to sources in the FBR, the amount in litigation is close to Rs400 billion, roughly 40% of the additional taxes that the PML-N government imposed since coming into power.

“After considering the erosion of trust in dispute resolution mechanism by taxpayer under the FBR umbrella, the TRC recommends the ‘Alternate Dispute Resolution’ (ADR) process to be under the ‘Federal Tax Ombudsman’.” It has also given an alternate option of restarting ADR under the existing tax laws and customs laws. But for that, it seeks clear time lines for resolution of dispute from the date of filing of ADR application, notification to the ADR panels and a representation from tax professionals. It further suggested that the decision of the panel should be binding on both the taxpayer and the tax department. The tax officer sitting on the panel should be provided protection against inquiry from the FBR and any external agency.

“The quality of judicial member, appointed on the panels, has been greatly compromised and over a period, the requirements of experience and seniority were lowered to facilitate the relatively junior tax officers to sit on these benches,” the TRC noted. The Commission observed that the amendment made in section 130(5) to facilitate an accountant member to become the chairman of ‘Appellate Tribunal of Inland Revenue’ is also against the principle of independence of judiciary.

The Commission underscored that there was an urgent need to introduce a simple sales tax law, which amongst the existing tax laws was most complex, very difficult for a common person to comply with.

The TRC said that one of the key factors which gave rise to litigation was the divergent interpretation of a complex and rapidly changing law by the tax department and the taxpayers. “The laws enacted are not properly drafted and the administrative guidelines are either not clear or at times tilted towards revenue maximisation. At times, there is an obvious conflict between the law and guidelines. These lead to litigation,” it said.

The third main reason was creation of demands pursuant to audit objections of either internal audit wing of the FBR or external audit conducted by the Auditor General of Pakistan. There have been instances that even in time barred cases, the assessment orders were passed to meet audit objections, according to the Commission’s findings.

Published in The Express Tribune, February 12^th, 2016.

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