ISLAMABAD: The Federal Board of Revenue (FBR) will encourage taxpayers to adapt to the forum of Alternate Dispute Resolution Committees (ADRCs) after revamping the system through Finance Act 2022.

Presently, litigation of Rs2.3 trillion involving 76,349 cases of Inland Revenue Service is pending the courts’ decision. The out-of-court settlement through the ADR committees would reduce the time and money involved in litigation, sources said.

According to the sources, the mechanism of alternate dispute resolution has been revamped through Finance Act, 2022. Under the revised system, disputes involving tax liability of one hundred million or above only can now be brought for settlement. Previously, there was no such bar for filing of an application under this mechanism.

The decision by committee will be binding on both the taxpayer and Chief Commissioner Inland Revenue having jurisdiction over the case. Previously, it was binding on Chief Commissioner only after it had been accepted by the taxpayer though withdrawal of appeal.

FBR acts to reduce Rs2.3trn litigations thru ADR option

Now, the disputes involving question of fact and law both can be brought by a taxpayer for settlement by the committee subject to the condition that 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. Previously, disputes involving interpretation of question of law having effect on other cases were specifically excluded from the purview of dispute resolution committee.

The scope of initial proposition has been expanded which now includes proposal from the taxpayer to settle the matter, including an offer for payment of tax which cannot be withdrawn.

The choice available to a taxpayer to appoint a member of dispute resolution committee has been enhanced. Now a taxpayer can nominate a member from a panel notified by the Board in this regard or an Officer of Inland Revenue Service who has retired in BS-21 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 Chief Commissioner Inland Revenue (being other member of the committee) having jurisdiction over the case and taxpayer’s nominee member jointly from the panel notified by the Board.

Taxpayer and the Chief Commissioner Inland Revenue having jurisdiction over the case either individually or both as the case may be, will withdraw their appeal pending before a court of law or appellate authority after the constitution of committee but before commencement of proceeding by the committee. Previously, there was no requirement of withdrawal of appeal and the taxpayer could choose to pursue his appeals in case he did not accept the committee’s decision.

The committee members will decide the dispute pending before the committee through majority. Earlier, consensus decision by committee members was required for dispute resolution.

The changed procedure of dispute resolution will ensure that it is focused on high revenue yielding cases and does not result in wastage of time and resources for the taxpayer as well as field formations by being an effective alternative and not a parallel mechanism to the appeal process.

A study of the Federal Tax Ombudsman (FTO) on the Alternative Dispute Resolution (ADR) mechanism revealed that most taxpayers are not aware of the facility of the ADR available with the FTO for the resolution of their tax-related disputes.

Copyright Business Recorder, 2023

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