In a significant move to streamline the tax dispute resolution process, the Federal Board of Revenue (FBR) of Pakistan issued S.R.O. 1377(I)/2024 on 6th September 2024. This notification brings about important amendments to Rule 231C of the Income Tax Rules, 2002. The changes primarily impact the way Alternative Dispute Resolution (ADR) is carried out under Section 134A of the Income Tax Ordinance, 2001, focusing on both state-owned enterprises (SOEs) and other taxpayers.
This blog will cover every essential detail of the amendments, breaking them down for practical understanding, while also offering professional insights into how they can be applied. Additionally, it will propose ways to utilize these new provisions for the benefit of taxpayers seeking resolution.
Key Highlights of S.R.O. 1377(I)/2024
The amendments introduced through S.R.O. 1377 focus on:
- Mandatory ADR for State-Owned Enterprises
- Application and Resolution Procedures for Tax Disputes
- Formation of ADR Committees
- Enforceability of ADR Decisions
These changes aim to provide a more structured and quicker resolution of disputes, thus benefiting both taxpayers and the FBR by reducing prolonged litigation.
1. Expanded Scope: Application of Rule 231C
Rule 231C, as amended, applies to all disputes brought for resolution under Section 134A of the Income Tax Ordinance, 2001. However, state-owned enterprises (SOEs) face a mandatory requirement to apply for ADR, regardless of the tax liability amount.
State-Owned Enterprises (SOEs)
SOEs are now required to submit disputes for ADR regardless of the amount in question. This measure is designed to reduce court backlogs by providing a streamlined process to address disputes, particularly those involving large public entities.
Other Entities
Private enterprises and individual taxpayers can still opt for ADR, but it is not compulsory. The amendments to Rule 231C make ADR a more viable option for businesses that want to resolve disputes quickly and avoid prolonged legal battles.
2. Alternative Dispute Resolution (ADR) Committee
A key feature of the new rules is the formation of ADR Committees, which are responsible for adjudicating disputes brought under Section 134A. These committees comprise professionals with deep expertise in taxation and business.
Committee Composition
The ADR Committee will be made up of:
- Retired Inland Revenue Service Officers (BS-21 and above)
- Chartered Accountants
- Cost and Management Accountants
- Advocates with 10+ years of tax experience
- Reputable Businessmen
This composition ensures a balanced view on disputes, incorporating perspectives from both legal and practical business standpoints.
Committee Remuneration
Each committee member is entitled to a one-time lump sum remuneration of PKR 100,000, payable by the FBR. This incentivizes the involvement of qualified individuals in the ADR process.
3. Step-by-Step Dispute Resolution Process
The amendments lay out a detailed process for taxpayers seeking dispute resolution through ADR. Below is a structured overview of the steps involved:
| Step | Description |
|---|---|
| 1. Application | The applicant submits a formal application to the FBR for ADR, using a specified format (as outlined in Part I of the Schedule). |
| 2. Initial Proposition | An initial proposition for resolving the dispute is submitted along with the application (Part IA). |
| 3. Offer to Pay | The applicant must include an offer to pay the disputed tax amount as a show of good faith (Part IB). |
| 4. Undertaking | The applicant provides an undertaking agreeing to accept the committee’s decision and to withdraw any pending litigation (Part IC). |
The application process is designed to encourage transparency, good faith, and expediency in dispute resolution.
4. Timelines for Decision-Making
The ADR Committee is required to reach a decision within 45 days of being formed. In cases where additional time is needed, the committee can extend this period by 15 days, provided there are justified reasons.
| Timeline | Action |
|---|---|
| 45 Days | The ADR Committee must reach a decision. |
| 15 Days (Extension) | An extension is permissible if the committee requires more time for deliberation. |
| 60 Days | Applicants must withdraw any related court cases within this period for the ADR decision to be binding. |
This strict timeline ensures disputes are resolved swiftly, reducing delays for both the taxpayer and the tax authorities.
5. Binding Nature of ADR Decisions
Once the ADR Committee issues a decision, it becomes binding on the Commissioner of Income Tax, provided that the applicant:
- Withdraws any pending court cases related to the dispute.
- Informs the Commissioner of the withdrawal within 60 days of receiving the committee’s decision.
Failure to comply within this period will render the committee’s decision non-binding on the Commissioner, thereby maintaining the integrity and enforceability of the ADR process.
6. Responsibilities and Compliance for Applicants
The amended rules emphasize compliance on the part of the applicants, particularly state-owned enterprises. These responsibilities include:
- Withdrawing all pending litigation related to the dispute once the ADR process is initiated.
- Adhering to the decisions of the ADR Committee if they choose to accept the resolution.
This framework fosters a cooperative relationship between the tax authorities and the taxpayers, reducing legal backlogs while ensuring disputes are handled fairly and transparently.
7. Impact of S.R.O. 1377(I)/2024 on Tax Disputes
The amendments introduced under S.R.O. 1377(I)/2024 bring much-needed reforms to the tax dispute resolution process. By mandating the use of ADR for SOEs, simplifying the application process, and setting strict timelines, the new rules aim to foster quicker and more efficient resolutions.
For tax consultants, these amendments offer a clear and structured framework for helping clients resolve tax disputes efficiently. Whether you’re advising a state-owned enterprise or a private entity, these rules provide new avenues for minimizing legal risks and avoiding prolonged litigation.
