Tax dept suggests CAA to opt for ADR path to claim tax exemption

LAHORE: The Income Tax department has proved that the Civil Aviation Authority (CAA), a state-owned enterprise (SOE), would have to opt for the Alternate Dispute Resolution (ADR) to establish its claim that it was exempt from paying income tax and didn’t have to follow the ARD process.

It may be noted that the SOEs are claiming exemption from paying income tax despite an amendment to section 134A of the Income Tax, requiring SOEs to mandatorily go for ARD to prove their exemptions.

The ADR process is available to resolve tax disputes between state-owned enterprises and the Federal Board of Revenue.

Initially, said sources, when this scheme was launched it had its teething problems for a number of reasons, including, but not limited to, the authority of FBR in terms of Section 134A(2) of the Ordinance not to accept the decision of an ADR committee if it was in favour of the taxpayer; a right of further appeal if the, taxpayer was not satisfied with the order of FBR; and composition of ADRC Committees which were headed by the officers of the FBR.

Finally, on 06.05.2024 Tax Laws (Amendment) Act, 2024, was promulgated, whereby the newly amended Section 134-A of the Ordinance is to apply mutatis mutandis on the Sales Tax Act,1990 and the Federal Excise Act, 2005; the limit of Rs.100 million has been reduced to Rs 50 million.

The sources said the most significant and relevant amendment made, which is fully applicable to the CAA, is that now it is mandatory for SOE to go for ADR, whereas the limit of Rs 50 million is also not applicable.

Earlier, the management of an SOE was reluctant to go for mediation in any business transaction due to fear of prosecution, but through the newly amended provisions, they have been protected from any suit, prosecution or other legal proceedings.

Since referral to ADR is now mandatory for SOE, a right to appeal has also been provided to SOE when the matter is not decided by ADRC within the stipulated period.

Accordingly, the relevant appellate forum has directed the CAA to use the ADR process or follow the Rules of Business to resolve the dispute.

Copyright Business Recorder, 2025