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  • Nov 3rd, 2017
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"...the raison d'ĂȘtre of establishing special tribunals has been to dispense better quality of justice where people, better trained in particular fields and disciplines could provide quality decisions and resolution of disputes. ... Appointing members to these tribunals on political basis or who are otherwise incompetent or have doubtful integrity would prove completely counterproductive. ..."-2000 PTCL CL 515.

In any society, administration and dispensation of justice should be the top most priority. A society without a sound, reliable and speedy judicial system, which does not ensure effective dispensation of justice, cannot survive for long. Administration and dispensation of justice under the various tax laws in Pakistan need serious attention, the entire system being at the brink of disaster. There is an urgent need to ensure "justice", "rule of law", "fairness", "equity" and independence of appellate authorities from the control of administration. The present tax dispute resolution system, based on conventional appeal and review system under various tax statutes, is on the verge of collapse. Everybody is totally dissatisfied with it. Those imparting justice complain of lack of facilities and huge number of cases, the complainants crying for early orders but have to wait for years (sometimes decades), and the revenue keeps worrying about the blockade of colossal amount of money in litigation process.

The present pathetic state of tax administration can be measured from the fact that every year over 85,000 writ petitions/appeals are filed in Pakistan against the orders of the tax authorities. Litigants have to wait for years to obtain orders. On the contrary, in civilized countries, only a few cases go for litigation to higher courts. A case in point is the United Kingdom where the number of income tax filers is 30 million whereas appeals reaching the Lord Chancellor in a year number only around 30. This confirms the tremendous public satisfaction with the credibility of system and good governance by fiscal administration. In Pakistan, we have less than 1.5 million income tax filers and around 150,000-180,000 sale tax registered parsons, but the number of appeals filed annually is in thousands.

Appellate authorities, as a matter of law and principle, should be independent in the true sense of the word. The honourable apex court of Pakistan has elaborated this principle in Government of Baluchistan v Azizullah Memon PLD 1993 SC 31 by holding that "separation of judiciary from executive is the cornerstone of independence of judiciary". The right of access to justice to all is a well-recognized inviolable right enshrined in the Constitution of Pakistan. It concludes "the right to be treated according to law, the right to have a fair and proper trial and right to have an impartial court or tribunal. Justice therefore can only be done if there is an independent judiciary which shall be separate from executive and not at its mercy or depend on it"-PLD 1982 SC 146.

It is a matter of record that none of the Government in Pakistan, military or civilian, has ever followed the directions of the honourable apex court of making tax appellate system independent of Executive. In the given Pakistani milieu, it is imperative that all the judicial and quasi-judicial authorities working in tax appellate system should be merged into National Tax Tribunal and regulated/supervised by Supreme Court of Pakistan as is the case with Federal Service Tribunal. This is the only way to ensure independence of tax justice system in its true substance and constitutional requirement [Article 203].

Tax codes of Pakistan-Income Tax Ordinance, 2001, Sales Tax Act, 1990, Federal Excise Act, 2005 and Customs Act, 1969-provide grievance redressal mechanisms for taxpayers against the orders of tax officials and appellate authorities. The right of appeal against orders of the first appellate authority [Commissioner of Appeals or Collector of Adjudication] is available to the tax administration as well, because it is not uncommon that tax authorities are aggrieved at the relief granted by the appellate authorities to taxpayers, and a higher appellate forum to examine the correctness of relief so given by an appellate authority is justified.

The appellate mechanism under the tax codes provides right to appeal before the Commissioner of Appeals/Collector Adjudication in case a taxpayer is aggrieved by orders passed by the revenue authorities. In case the

taxpayer or even the Commissioner/Collector is aggrieved by the decision

of the Commissioner (Appeals)/Collector (Adjudication), the aggrieved party can carry the matter further in appeal before the Appellate Tribunal Inland Revenue (ATIR) or Customs Appellate Tribunal as the case may be.

Tax Tribunal in the Sub-Continent was established on 25th January, 1941. On 28 October 2009 it was renamed as Appellate Tribunal Inland Revenue (ATIR) through a Presidential Ordinance in Pakistan in the wake of amalgamation of income tax and sales tax into one unified group. ATIR is not only an appellate forum for the taxpayers, but it is an equally important forum for FBR aggrieved of any relief given to the taxpayer by Commissioner (Appeals), who is incidentally a member of the Inland Revenue Service.

In developing economies like Pakistan, one of the biggest problems is higher tax rates on a relatively small tax base and the reluctance of ordinary people to file tax returns and thus submit themselves to scrutiny of their affairs by the tax administration. However, once a taxpayer professes faith in the effectiveness of legal remedies against an unjust tax levy or unjust action of the taxation authorities, he would be more likely to be truthful to the taxation authorities, and willing to accept a reasonable levy of tax.

The degree of taxpayer satisfaction would consequently increase which, in turn, is a sine qua non for better voluntary compliance resulting in greater resource mobilization. While on the surface a tax judiciary inherently deals with the involuntary collections enforced by the tax administration, an efficient tax judiciary actually creates a conducive atmosphere for better voluntary compliance by taxpayers and, thus, for greater resource mobilization by the State. A tax administration which disposes of appeals promptly and speedily reaches a fair and final settlement is itself entitled to be classified as a tax incentive.

To a tax collector, an efficient tax judiciary ensures that demands arising out of legitimate tax assessments, which can stand scrutiny of law, are not unnecessarily locked up in litigation. As long as there is a pending litigation in relation to a particular tax levy, there is a natural, and quite understandable, desire on the taxpayer's part not to pay the disputed amount during pendency of litigation. An efficient tax judiciary resolves disputes quickly, quashes demands which are not legally sustainable, and thus segregates serious tax demands from frivolous tax demands, as also giving finality to legitimate tax demands. This in turn ensures that taxpayers cannot resort to dilatory tactics for paying these genuine and legitimate tax demands which have received judicial approval. An efficient tax judiciary thus helps removing impediments from collection of genuine tax demands by the State, which, once again, results in greater resource mobilization. An effective tax judiciary does not only settle tax dispute between a taxpayer and the State, but it also lays down principles on the basis of such resolved disputes which provide guidance for the future. These decisions, which have precedence value in the sense that same decision has to be taken on materially identical facts, also have normative effect thus helping in correcting the judicial course. This way, an effective tax judiciary also contributes to smooth functioning of the tax machinery.

The powers of the ATIR are exercised by benches comprising Judicial and Accountant Members. The qualification for appointment as Judicial Member is the same as that for the appointment of a High Court judge, and only well experienced and competent people from the legal profession and judiciary are selected. Prior to amendment in 2007, the Accountant Member must have been an officer of Grade 21. In 2007, the Commissioner in Grade 20 having appellate experience of five years was also included. In 2010, the condition of working as Commissioner Appeal was removed. And the Finance Bill 2012 has reduced the condition from 5 to 3 years. The amendments made in 2007, 2010 and 2012 were highly undesirable. Officers from FBR having little or no experience of appellate work should not be made part of ATIR. The technical quality of pure judicial work and understanding of matters required at Tribunal level would be compromised by appointment of such officers. Their induction should also be through Public Service Commission of Pakistan.

To make Tribunal a truly independent forum, it is even imperative to recruit Chartered Accountants as Accountant Members through Federal Public Service Commission. Officers from FBR coming as Accountant Members should possess minimum 20 years of experience, having served at least two years as Commissioner of Appeals.

The following points should seriously be debated for effective and efficient resolution of tax dispute:

1. Existing 4-tier appeal system under the tax laws-direct and indirect-consumes so much time for final settlement that the very purpose of seeking remedy becomes meaningless-justice delayed is justice denied aptly applies to the existing tax appellate system. The government has borrowed millions of dollars from the World Bank and other donors for tax reforms, but no effort has so far been made to revamp the ailing tax appellate system for rapid disposal of tax disputes and reduction in unnecessary litigation.

2. The first appeal under the prevalent 4-tier appellate system lies before the Commissioner of Appeals/Collector Appeals working under the administrative control of Federal Board of Revenue (FBR). It is a travesty of justice. An aggrieved taxpayer is to seek relief from the departmental authorities. The FBR-appointed and controlled appellate authorities act as helping hands for their brothers in service for collection of irrational and harsh demands to meet budgetary targets. They do give relief where issues are already decided by higher courts in favour of taxpayers but even for this "favour" taxpayers have to grease their palms. The Annual Confidential Reports (ACRs)-vital for further promotion in the service-of these "appellate" (sic) authorities are written by their bosses in FBR. Due to this constraint, they cannot impart justice even if they want to do so. The first-tier of appeal in view of this fact alone should be abolished immediately.

3. The second tier, ie, Tax Appellate Tribunal (one dealing with Customs and second with all other indirect and direct taxes) is under the federal government [Ministry of Law] which is against the principle of "independence of judiciary" [highlighted in Para 5, page 12 of NJP 2009]. Working as single, double or full (in special cases) benches, members are chosen from the legal fraternity or judicial services (Judicial Member) and the tax department (Accountant Member or Technical Member). Accountant/Technical Members work with heavy heart as they are mostly sent against their consent. They are the "dumped ones"-not liked by the department hence condemned to go on deputation to tribunals. They do, however, get double salary, courtesy FBR that is bent upon wasting billions of borrowed rupees on perks and perquisites rather than for any productive purposes. On the contrary, salary of a Judicial Member is even lower than that of a civil judge. Tribunal is the final fact-finding authority and no further appeal lies to the High Court unless question of interpretation of law is required. Such an important forum dealing with federal statutes is financially dependent on federal government. The Customs Tribunal and Appellate Tribunal Inland Revenue should be merged into singular National Tax Appellate Tribunal. Like the Services Tribunal, this too should work under direct supervision of the Supreme Court. Appeals against its decisions should go directly to the Supreme Court.

4. After merging Appellate Tribunal Inland Revenue and Customs Tribunal, the new entity should be renamed as National Tax Tribunal. Appeals against the orders of the Tribunal should lie with the Supreme Court alone. Members for Tax Appellate Tribunal should be recruited in the same manner as judges of High Court.

5. The pay, perquisites and salary structure of Chairman, members and staff should be at par with the Judge of a High Court, Sessions Judge and staff of the lower judiciary, respectively.

6. Tax codes are federal statutes but references against orders of the Tribunal go to the High Court that operates within provincial jurisdictions. A person filing reference in Lahore High Court may get a different order on an identical issue filed in Sindh High Court. On identical issues, there is no certainty of uniform orders at the level of high courts. It is hence advisable to place Tax Appellate Tribunal directly under the Supreme Court. Presently, thousands of tax references are lying in different high courts of the country. It takes years and years at this forum for taxpayers to get the first hearing-what to talk of final decision that may take more than 10 years as normal routine.

7. The final court of appeal-as for all other matters-is the Supreme Court that ends the tumultuous journey of taxpayer or government on any disputed legal issue requiring interpretation of law. If Tax Appellate Tribunal is established, there will be drastic reduction in litigation.

Without any iota of doubt, the four-tier appellate tax structure discussed above has become outdated, ineffective - fraught with innumerable encumbrances. Replacement of the entire system as suggested above - in line with prevailing judicial remedies in other departments of the government - is the only way out. To quote an example, one can easily refer to the Civil Services Act of 1973 under which government employees can approach the Services Tribunal to settle all the disputes pertaining to their service matters. Appeal against any order of the Services Tribunal lies directly to the Supreme Court. This should also be the case for tax matters. First appeal should be directly to Tribunal and for final adjudication, before the Supreme Court. If 2-tier tax appellate system is implemented, the following benefits and advantages will emerge:

* Appeal Commissioners (sic) will be relieved of passing biased judgements and worrying about the future of their careers.

* Existing Tax Tribunals after their conversion into National Tax Tribunal and selection of members by the Supreme Court will be better equipped to give quality and speedy decisions.

* The High Courts would be relieved of the continuously rising number of tax cases that remain undecided for many years because of the huge backlog of other civil/criminal cases and non-availability of specialised tax judges.

* Very few tax cases would go to the apex court where leave to appeal is granted in which important issues of legal interpretation are involved.

The tax reforms must start from making tax tribunals (inland revenues and customs) truly independent and effective judicial forums not working under the Ministry of Law. Tax Appellate system-like all other judicial institutions-should be independent in the true sense of the word. In order to initiate a debate, a proposed draft for National Tax Tribunal is given below. It may be discussed in public and Parliament after taking input from all stakeholders may enact it as a law after adopting due process of law:


ACT NO. --- OF 2017

An Act to provide for the adjudication, by an appellate tribunal, of disputes with respect to all federal tax codes and for matters connected therewith or incidental thereto.

Short title, extent and commencement

(1) This Act may be called the National Tax Appellate Tribunal Act, 2017.

(2) It extends to the whole of Pakistan.

(3) It shall come into force on such date as the federal government may, by notification in the Official Gazette, appoint.

2. Definitions. In this Act, unless the context otherwise requires, - (a) "Appellate Tribunal" means the Tax Appellate Tribunal constituted under section 3; (b) "appointed day" means the date with effect from which the Appellate Tribunal is established, by notification, under section 3; (c) "Bench" means a Bench of the Appellate Tribunal; (d) "Board" means the Federal Board of Revenue constituted under the Federal Board of Revenue Act, 2007 (Act No. IV of 2007); (e) "federal tax codes" mean the acts annexed at Schedule I to this Act; (f) "Member" means a Member of the Appellate Tribunal and includes the President; (g) "notification" means a notification published in the Official Gazette; (h) "President" means the President of the Appellate Tribunal; (i) "prescribed" means prescribed by rules; (j) "rules" means rules made under this Act; and (k) "Supreme Court" means the Supreme Court of Pakistan as defined in Constitution of Pakistan;

3. Establishment of the Appellate Tribunal. The federal government shall by notification, establish a tax appellate tribunal, to be known as Tax Appellate Tribunal, to exercise the jurisdiction, powers and authority conferred on such Appellate Tribunal by or under this Act.

4. Composition of the Appellate Tribunal and Benches thereof. (1) The Appellate Tribunal shall consist of a President and such number as the President with the approval of Chief Justice of Pakistan may deem fit, and subject to the other provisions of this Act, the jurisdiction, powers and authority of the Appellate Tribunal may be exercised by Benches thereof.

(2) A Bench shall consist of at least two Members.

(3) Subject to the other provisions of this Act, the Benches of the Appellate Tribunal shall ordinarily sit at Islamabad and at such other places as the President may deem fit.

5. Qualifications for appointment as President or Member. (1) A person shall not be qualified for appointment as the President unless he- (a) is, or has been, a Judge of a High Court; or (b) has, for at least two years, held the office of a Member of Appellate Tribunal.

(2) A person shall not be qualified for appointment as a Member unless he- (a) is, or has been, or is qualified to be, a Judge of a High Court; or (b) has been a member of the Judicial Service and has held a post of District and Sessions Judge or any equivalent or higher post for at least five years.

6. Appointment of President and Members. (1) Subject to the provisions of sub-section (2), the President and every Member shall be appointed by the President of Pakistan following the same procedure as is laid down in the Constitution of Islamic republic of Pakistan for appointments of Judges of High Court.

(2) Appointment of a person as the President or a Member shall be made in consultation with a Selection Committee consisting of- (a) a Chairman who shall be nominated by the Chief Justice of Pakistan; and (b) such other members as may be nominated by the President of Pakistan through gazette notification.

(To be continued)

(The writers, partners in law firm, Huzaima & Ikram, are Adjunct Faculty at Lahore University of Management Sciences)

the author