Destroying tax appellate system

The Finance Minister, Ishaq Dar, in the Finance Bill 2014, ignored the demand that tax appellate system should be made independent, free from the administrative controls as directed by the Supreme Court of Pakistan. Even the amendments proposed in section 130 of the Income Tax Ordinance, 2001 to restore the original position of Appellate Tribunal Inland Revenue (ATIR) have been rejected by the officials of the Federal Board of Revenue (FBR) as reportedly the same were not presented before the Cabinet. This shows how little the present government is concerned about tax reforms and making tax justice system independent and efficient.
The FBR has managed to hoodwink the government of Nawaz Sharif for the second time. In the Finance Act 2013 a number of unconstitutional provisions were added, but the most serious violation of the supreme law of the land was an amendment in section 130 of the Income Tax Ordinance, 2001 providing for appointment of department officials as 'judicial members'. The Finance Minister who claims to be an expert in taxes, finance and economics, at the time of giving nod to the tax proposals, could not even understand what the bureaucrats of FBR were up to - they wanted to capture ATIR. The evidence of this came to the fore when they finally got a person, ignored for promotion for Grade 21, appointed as Judicial Member in 2014.
It is unfortunate that the Cabinet and Parliament just act as rubber stamp for passing the Finance Bills. They are equally guilty of committing violations of the Constitution. FBR's stalwarts use elected representatives as an instrument to fulfil their nefarious designs. The FBR has sinfully and skilfully managed to destroy the independence of a judicial organ of the State, having a cherished history of seven decades, and committed a grave violation of the instructions of the superior court in utter disregard of Articles 189 and 201 of the Constitution of Pakistan.
FBR, cleverly taking benefit of the elected members' ignorance of tax laws, got inserted in the Finance Act 2013 [earlier in 2012 as well], a number of amendments that have crippled the already ineffective tax appellate system. Appointment of tax officials as Judicial Members is aimed at converting ATIR into a 'camp office' of FBR. The officialdom of FBR wants affirmation of arbitrary and unlawful orders passed by taxation officers to meet budgetary targets. All tax bars agitated against this amendment, yet it was approved by Parliament. Now in the Finance Bill 2014, the position is not reverted despite the promise made by Ishaq Dar to tax bars and taxpayers.
Historically, Account Members, coming from FBR, were officers in Grade 21 (Chief Commissioners) or Commissioners in Grade 20 with 5 years' of experience. The Finance Act 2012 reduced this condition to 3 years' experience. This facilitated induction of junior commissioners who could be influenced by FBR in the hope of better postings on their return to parent department. But the amendment by Finance Act 2013 to have Judicial Members in Grade 20 with law graduation was totally unlawful. We pointed out ['Need for National Tax Court', Business Recorder, May 6-7, 2011] that such inductions would further destroy the already ailing 4-tier tax justice system.
The setting up of the Tribunal in India in 1941 by the British government brought about a paradigm shift in the grievance redressal system. The scheme of things in the Tribunal envisaged complete functional independence of the institution, a high degree of legal and technical expertise of the Members manning the benches, user-friendly, simpler and informal procedures, and inexpensive and quick justice delivery. It appears FBR does not like this legacy. Throughout its history of 73 years, the qualification for appointment as Judicial Member has been the same as for the appointment of a High Court Judge, and only well experienced and competent people from the legal profession and judiciary have to be selected. The political government made many appointments on the basis of nepotism and destroyed this institution during the last two decades. For Accountant Members, the Ministry of Law selects people nominated by FBR. But in 2014, the government of Nawaz Sharif destroyed this legacy of over seven decades by directly appointing an FBR official as Judicial Member.
The amendment made in 2013 that facilitated the appointment in 2014 of FBR's official as Judicial Member is against Para 5 of the National Judicial Policy 2009 which says: "All special courts/tribunals under the administrative control of Executive must be placed under the control and supervision of the Judiciary, their appointments/postings should be made on the recommendation of the Chief Justices of concerned High Court." In 2013, in the wake of this amendment, we recommended a challenge on behalf of All Pakistan Tax Bar before the Supreme Court, but they did not take any action. They are silent even today. It is high time that they should take up the matter with Chief Justice of Pakistan for the implementation of Para 5 of the National Judicial Policy 2009 and also file a petition directly in the Supreme Court under Article 184(3) for its implementation.
Prior to amendment in 2007, the Accountant Member must have been an officer of Grade 21. In 2007, Commissioner in Grade 20 having appellate experience of five years was also included. In 2010, the condition of working as Commissioner Appeal was removed. Then the Finance Act 2012 reduced condition of 5 to 3 years. The worst amendment came through Finance Act 2013 providing for appointment of IRS officers as judicial members. Amendments made in 2007, 2010, 2012 and 2013 were highly undesirable. The officers from FBR having little experience or no experience of appellate work have since been made part of ATIR as Accountant Members, and now one as Judicial Member. This has destroyed the very basis of this institution.
The insertion of clause (c) in section 130(3) by Finance Act 2013, insertions of words in section 130(5) "and, except in special circumstances, the person appointed should be a judicial member" and amendment through Finance Act 2012 to lower the service period requirement of Commissioner to be Member of the Tribunal to three years [section 130(4)(ii) are against the principle of independence of judiciary. The original position of law that only a judicial member can be Chairman of the Tribunal must be restored through Finance Bill 2014.
In fact, the ATIR should not be under the control of Ministry of Law and should be placed under the judiciary. It is imperative to make the ATIR a truly independent and effective judicial forum. No person from Inland Revenue Service should be part of ATIR. Accountant members should be Chartered Accountants (CAs) and/or Cost and Management Accountants (CMAs), having tax experience of at least ten years, recruited by Judiciary. Judicial Members should be as historically provided. This is necessary to make Tribunal an independent appellate body.
(The writers, lawyers and Adjunct Faculty at Lahore University of Management Sciences (LUMS), are partners in law firm, Huzaima & Ikram (Taxand Pakistan)