Disputed tax claims: Govt considers out-of-court settlement with litigants

Dues have mounted up to Rs365b; FBR’s increasing demands resulting in court cases

ISLAMABAD:

The government is considering offering an out-of-court settlement to thousands of litigants since disputed tax dues have mounted up to Rs365 billion, due to weak panel of lawyers hired by the Federal Board of Revenue (FBR) and indefensible demands raised against the taxpayers. 

“An amount of Rs365 billion is stuck up at various places therefore, the government is now considering offering a scheme to get less than the disputed claims and settle the cases,” said Special Assistant to the Prime Minister on Revenue Haroon Akhtar Khan, while speaking to a gathering of investors at the second “Pakistan Investment Conference’ on Thursday.

The disputed tax claims is equal to the additional tax measures the PML-N government implemented last year and Rs125 billion more than the amount the government hopes to generate as a result of the new tax measures it announced from July this year.

“The amount stuck in court cases is of no use to the FBR. India has offered a similar scheme where it has asked litigants to pay 35% of the disputed amount and settle the case,” said Haroon, adding that the scheme will be offered very soon.

The International Monetary Fund (IMF) response to any such scheme would be a critical factor.

There has been a steep rise in disputed tax claims in recent years after the FBR started raising demands with many of them being raised on weak legal grounds, providing an opportunity to take authorities to courts.

The FBR management was also involved in arm-twisting of tribunals and appellate forums, forcing them not to give a stay order, according to FBR officials.

Another major reason for the growing number of disputed tax claims was the weak panel of tax lawyers.

“The tax authorities are paying only Rs30,000 as lump sum to the lawyer for a court case,” disclosed the FBR Chairman Tariq Bajwa, in a recent appearance in the Public Accounts Committee.

However, there were exceptions as to where the fee was higher than the said amount.

Due to weak prosecution, the FBR was losing nine out of every 10 cases, according to federal auditors.

The PAC had abolished the government’s criteria for selecting lawyers that defended tax-related cases in courts, asking it to set a more stringent and professional benchmarks aimed at improving its winning ratio.

Saqib Masood, senior partner at KPMG Taseer Hadi & Company - a leading chartered accountant firm - had raised the issue for the need of an ‘Alternate Dispute Resolution Courts’ to settle disputes before taking them to the court.

Haroon said he was in favour of the alternative dispute resolution mechanism, and admitted that the bureaucracy was a hurdle in the quick decision-making process. He also asked foreign investors to invest in Pakistan by taking advantage of tax breaks the country was offering to promote foreign investments.

“Pakistan offers tax concessions and exemptions in vast areas particularly on investments in power generation, transmission, setting up of Liquefied Natural Gas (LNG) terminals and imports, house sector and manufacturing of cellular phones,” said FBR Member Inland Revenue Policy Shahid Hussain Assad.

Despite offering huge tax incentives, inconsistency and unpredictability in taxation policy remains a concern for the foreign investors. The government has been tinkering with the tax laws every month to support the dwindling tax revenues.

“The new telecom and automobile policies are currently under discussion and the government plans to give major tax breaks on new investments,” added Haroon.

However, local investors complained against the special tax treatment to foreign investors, saying this had put the local ones in a disadvantageous position.

Published in The Express Tribune, November 6^th, 2015.

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