Taxes stuck in litigation rise 38%

Government allocates Rs2,687 per case to defend Rs1.8tr under litigation

ISLAMABAD:

The disputed tax amount stuck in litigation has shot up 38% in two years to nearly Rs1.8 trillion amid questions over government’s priorities, which is defending the colossal amount by allocating a budget that boils down to Rs2,687 per case.

The Pakistan Tehreek-e-Insaf (PTI) government has lately started focusing on the revenue that is under litigation but its actions are not enough to ensure quick recovery, said government sources.

The composition of appellate tribunal benches remains incomplete while authorities pay too little to the lawyers engaged to defend the cases.

The lawyers’ fee has recently been revised but still it is capped at a maximum Rs600,000 per case for a lawyer appearing before the Supreme Court.

Electronic filing of appeals will be allowed from next month but that does not change the mindset of taxmen, which is the cause of nearly one-third of the stuck cases, said the government sources.

At the end of December 2020, Rs1.77 trillion was stuck in litigation, up from nearly Rs1.3 trillion over two years ago, showed the statistics compiled by the Federal Board of Revenue (FBR).

Over two years ago, less than 32,000 cases were stuck in courts, which have increased by nearly 150% to over 76,700, according to the official figures.

What is appalling is that the federal government has allocated Rs209 million in the current fiscal year’s budget to defend these cases, which translates into Rs2,687 per case.

Last year, the allocation was Rs309 million, which could not be fully utilised. The FBR had collected nearly Rs4 trillion in taxes in the last fiscal year and the disputed amount was equal to nearly 44% of the total collection.

A senior government functionary said that Rs1.8 trillion was on the higher side and there was a need for reconciliation of figures.

There are roughly 14,000 cases pending before commissioner appeals, involving Rs671 billion. The disputed amount at the first tier of appeal was about 38% of the total value under litigation. There was an increase of about three-fourths in the cases pending before the commissioner appeals.

 The commissioner appeals is an officer of the FBR and the first grievances redressing forum available to a taxpayer.

FBR’s statistics showed that in the Appellate Tribunal, about 51,578 cases were pending involving Rs442 billion.

There was an increase of 285% in the number of pending cases in the past two years. The appellate tribunals comprised members from the FBR and the judiciary, which are notified by the Ministry of Law.

In total, about two-thirds of the cases are pending either before commissioner appeals benches or appellate tribunal benches, which are being headed by FBR officers along with judicial members (at the appellate tribunal only).

Special Assistant to Prime Minister Dr Waqar Masood Khan had met with the law minister and requested him to complete the appellate benches.

The FBR’s legal department is also making efforts to bring competent lawyers into its fold to defend these cases but its wings remain clipped due to many financial and administrative constraints. About 8,800 cases were pending before the high courts, involving Rs568 billion.

There was a 58% increase in the revenue stuck in various courts over the past two years. About 1,620 cases were pending before the Islamabad High Court involving a revenue of Rs263 billion.

Nearly Rs2,150 cases were pending before the Sindh High Court involving an amount of Rs97 billion and 4,900 cases having value of Rs202 billion were pending before the Lahore High Court.

In the Peshawar High Court, 174 cases involving a revenue of Rs6 billion and in the Balochistan High Court 11 cases involving Rs426 million in disputed taxes were pending.

There were 2,173 pending cases before the Supreme Court of Pakistan having value of Rs88 billion.

In the past over two years, nearly 500 more appeals were filed before the Supreme Court against the tax measures, showing a 28% surge.

“There is a need to review the whole tax-related legal system aimed at swiftly deciding the growing number of cases under litigation,” said Ashfaq Tola, a leading tax consultant.

The forum of commissioner appeals should be abolished, tax tribunals be made more effective and a tax dispute settlement commission should be formed to clear the backlog, said Tola, who has remained a member of the Tax Reforms Commission.

Tola said that taxpayers were not very inclined to adopt the Alternative Dispute Resolution Mechanism despite some major legal changes made in the budget.

The government has recently revised the fee for legal advisers, who are being hired to defend these cases.

However, even after the revision, the general fee rates are very nominal compared with the hefty fees that the private sector parties pay to their advocates.

The FBR’s legal adviser fee for a Supreme Court case is just Rs150,000 in one case that could go up to a maximum of Rs600,000.

Similarly, the fee for high court cases is Rs100,000, which is capped at a maximum of Rs400,000 per case.

In exceptional circumstances, the government can hire lawyers at higher fees. Four months ago, the federal cabinet amended the Rules of Business 1973 aimed at empowering the FBR to directly hire legal advisers.

Earlier, the Ministry of Law was the final authority to hire the legal advisers. After the cabinet’s decision, the FBR issued fresh guidelines for the placement of legal advisers on the panel of the tax machinery to defend the cases.

The process to engage legal advisers is currently underway, according to an FBR official.