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Editorial

October 12, 2018

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Tax litigation

The task to improve tax collection in Pakistan faces numerous challenges. One of the key challenges that is not spoken about is how successful the existing efforts to target tax evasion have been. Some recently revealed documents confirm a rather disturbing fact: Rs1.276 trillion in tax is stuck at different stages of litigation in 31,098 cases. This should be an indication of the scale of the challenge that any concerted effort to reform the tax system in the country faces. It is said that the FBR is looking to put in place mechanisms of dispute resolution to avoid litigation. While it seems that the only thing necessary is for tax authorities to knock on someone’s door to collect tax, the real challenge is much more difficult. In many cases, when the FBR does conduct an audit or is able to identify some form of tax evasion, it must often face the challenge of going through the court system to collect the said amounts. In other cases, some taxpayers feel genuinely aggrieved over what they consider to be unreasonable tax claims from the tax collector. It would be good to see a breakdown of how many of these cases could have been avoided had the FBR collected its numbers right in the first place.

FBR officials have responded by saying that the real figure is much lower due to multiple accounting, but the FBR has done little to explain what this implies. It will be important for them to explain what can be done to mitigate the impact of litigation on tax collection targets. Does it charge existing taxpayers too much to meet targets? Or are most tax cases related to non-filers or tax evaders? Depending on what the distribution of such cases is, mechanisms will need to be made to address these issues before any tax collection campaign. Many of these cases remain stuck with stay orders lasting more than six months. Tax experts have suggested a litigation audit of the FBR. It is important to understand the reasons for so much litigation against the FBR before moving forward with a major tax collection campaign. Dispute resolution mechanisms will offer a way of reducing the workload that goes to the courts, and litigation should be the last resort in tax cases. While unavoidable in many cases, there is a need to see how this matter can be improved as a part of efforts at tax reform.

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