The Alternate Dispute Resolution

IMPROVEMENT IN WORKING - ADR MATTERS

• ADR matters are being closely monitored.

• Proper software is being developed.

• Monthly performance reports in proper format will be called from Direct & Indirect Taxes Wings.

• A format is being designed. This will apply on the pending cases and fresh filing.

• Relevant legal changes in ADR mechanism have already been incorporated in the Finance Bill, 2007.

Latest Progress In ADRCs (Both Direct & Indirect Taxes) As On 15-07-07

Appeal Cases Pending Before ADRCs (Indirect Taxes)

• We have already issued instructions to Collector (Appeals) and also informed the Chairman, Appellate Tribunals that:
   

  • There is no bar under Section 195 of the Customs Act, 1969, 47A of the Sales Tax Act, 1990 and Section 38 of the Federal Excise Act, 2005 to stay the proceedings and grant adjournments where tax payers have preferred ADRC as alternate mode of resolution of disputes.

  • While it is the discretion of the Collectors (Appeals) to consider adjournments on merit, the same may not necessarily be given where the tax payer has preferred ADRC.

Impact of Alternate Dispute Resolution on Appeals and Litigation

• Common Complaints of taxpayers within the existing system used to involve lengthy litigations, extending over decades. In order to eliminate such delays in deliverance of justice and redressal of grievances, the system of ADR has been introduced.

• It is resolving of the tax or duty disputes out of court, between the person and the institution. Parties to the dispute may arrive at a mutually agreed solution of the dispute.

• The system of ADR aims at providing the aggrieved tax payer a platform to raise his dispute at a forum separate from the conventional forum.

• In this system, there are no “Losers” or “Winners”. It is about deciding disputes which are set and rest on the method of “win-win situation for all”. In fact, ADR is a “hybrid system” in tax matters.

• ADR is yet another example of FBR’s commitment to revamp the existing system of Tax Administration in Pakistan.
   

Benefits of ADR for FBR and Tax Payer

• Reduces the number of litigation cases and the burden on the courts
• Saves the management time of litigants.
• Saves litigation costs.
• Controls mal-administration.
• Avoids diversions of time in bringing cases to the courts.
• Settles disputes through tax experts and recognized institutions.
•  It directly goes to the root of dispute instead of periphery.
•  Preservation of business relationships.
• Better case management.
• Greater satisfaction with instant results/outcomes-more options.
• Confidentiality.
• Flexibility of procedures.
• Quicker resolutions.
•  Lower costs for all parties to the dispute.

Referring Disputes for ADR

·        Present rules prescribe the stages at which disputes could             be referred for ADR subject to FBR’s agreement to form the Committee.

·        A matter can be referred for ADR from either of the         following stages:

o       After adjudication or assessment, i.e. during pendency of appeal before the Collector (Appeals) or Commissioner (Appeals)

o       After decision of appeal by the Collector (Appeals) or Commissioner (Appeals), i.e. during pendency of appeal before the Appellate Tribunal;

o        

o       After decision of appeal by the Appellate Tribunal, i.e. during pendency of appeal before a High Court;

o       After decision of appeal by High Court, i.e. during pendency of appeal before the Supreme court.

·        ADR does not involve any fee, charges or costs. There is no time limit for applying for ADR. The application can be submitted any time during the pendency of the matter before any appellate authority, tribunal or court and that it should not be a past and closed transaction.

Provisions in Various Tax Laws Pertaining to ADR

The Legislature has provided following provisions regarding the ADR in various tax laws through the Finance Bill, 2005:

• Finance Act 2006 has made ADRC available where appeal has been filed. Supreme Court in its recent judgement decided that where criminal proceedings have been initiated, the ADR process would not be available.
• By the Finance Act 2005, Wealth Tax disputes of the erstwhile Wealth Tax Laws have also been made a subject matter of ADR.
• Insertion of these related provisions in various tax laws will provide another venue to the taxpayers to have easy “access to justice” and to resolve disputes at private/public institutions, with no costs and delays.
• Pakistan is Pioneer and fore-runner in introducing the Alternate Dispute Resolution mechanism in the tax laws.
• The ADR coupled with reduction in the litigations (80,000 appeals were finalized at the Commissioners and Collectors level, within span of two years), and special bench of Supreme court deciding appeals, will have impact on the litigation at High court and Tribunal level and will provide easy access to justice.
• This strategy is a part of the Reforms Program which is on the right track. FBR has now been declared as 98% responsive in the direct tax matters (American Business Council Survey).
• The Alternate Dispute Resolution mechanism supplements traditional mode of dispensation of justice. The recommendations/decisions of the ADRC are non-binding on Parties or FBR.
• FBR may, in case of accepting the recommendations, pass a formal order/judgment and on payment of tax, all the proceedings abate, and the orders/judgments made are taken as modified to that extent.
• In case when the matter is subjudice before the Court the recommendations and order/agreement are to be placed before the Court/Authority, which can then, pass an appropriate order.
• 1173 applications were received for ADR wherein 107 applications were either rejected or withdrawn. In 987 cases, ADR Committees were formed. Recommendations of ADRCs in 358 cases were received in the Board where 71 recommendations were not accepted and in 270 cases, ADRCs recommendations were accepted by FBR for implementation.
• The number of applications for the ADRC is growing.
• In over one hundred appeals, taxpayers preferred ADR and requested for stay of appeals proceedings.
• The number of applications received for ADR has already crossed 1,000 cases.
• Once the awareness level is raised, small taxpayers will also prefer this mode, henceforth the number of appeals at the High Court and Tribunal level will decline.
• With the prevailing trend, we expect figures of appeals will be staged at about 8,000 in 2008.
• The ADR works on the method of “discovery”; hence “knowing” the weaknesses and strengths of both the parties to the dispute; through mediation and/or negotiation, and settlement, as compared with adversarial litigation under the traditional system.
•  The ADR has been termed by some taxpayers as a breath of fresh air; a paradigm shift, and a window of opportunity to have easy access to justice.
•  Through the ADR and the consequent reduction in the litigation; the taxpayer is facilitated to pay his tax dues with certainty, accuracy and in accordance with the law.
   
• The ADR will go a long way to resolve the disputes and reduce litigation. The credibility, impartiality and integrity of the ADRCs will provide impetus to the working of the ADR System.