The Finance Act, 2022 has brought about significant changes in the mechanism of alternate dispute resolution (ADR) in Pakistan. This article aims to provide an overview of the revamped ADR mechanism and its implications for taxpayers in Pakistan.
Previously, there was no bar on filing an application under the ADR mechanism for disputes involving tax liability. However, the new regime now limits the filing of applications for disputes involving tax liability of one hundred million or above. This change is aimed at focusing the ADR mechanism on high revenue yielding cases.
Another significant departure from the previous regime is that disputes involving both questions of fact and law can now be brought before the committee for settlement. However, the decision by the committee will not be cited or taken as a precedent in any other case or in the same case for a different tax year.
Additionally, the scope of the initial proposition has been expanded, allowing taxpayers to propose settlement of the matter, including an offer for payment of tax which cannot be withdrawn.
Under the new regime, taxpayers have an enhanced choice of appointing a member of the dispute resolution committee. They can now nominate a member from a panel notified by the Board, an Officer of Inland Revenue Service who has retired in B S21 or above, or a reputable business person as nominated by a Chamber of Commerce and Industry. The third member of the committee will be selected through consensus by the Chief Commissioner Inland Revenue and the taxpayer’s nominee member jointly from the panel notified by the Board.
Before the commencement of proceedings by the committee, the taxpayer and the Chief Commissioner Inland Revenue having jurisdiction over the case will withdraw their appeal pending before a court of law or appellate authority. Previously, there was no requirement for withdrawal of appeal, and the taxpayer could choose to pursue their appeals in case they did not accept the committee’s decision.
In the new regime, the committee members will decide the dispute pending before the committee through majority, whereas previously, consensus decision by committee members was required for dispute resolution. Furthermore, the decision by the committee will be binding on both the taxpayer and the Chief Commissioner Inland Revenue having jurisdiction over the case. Previously, it was binding on the Chief Commissioner only after it had been accepted by the taxpayer through withdrawal of appeal.
The revamped mechanism of ADR ensures that it is an effective alternative to the appeal process and not a parallel mechanism. By focusing on high revenue yielding cases, the new regime saves time and resources for both taxpayers and field formations. Moreover, the expanded scope of the initial proposition and the enhanced choice of appointing a member of the dispute resolution committee provide taxpayers with more options for resolving disputes with the tax authorities.
In conclusion, the revamped mechanism of ADR is a step towards a more efficient and effective tax system in Pakistan. Taxpayers must stay informed about the changes to the ADR mechanism to make the most of this alternative dispute resolution process.