Rebuilding tax justice—IV When State litigates w...

Summary

• Reporting dates and definitions vary, but the conclusion does not: Pakistan cannot adjudicate its way out of a culture that treats every disputed demand as potential revenue and every adverse order as a candidate for another appeal.¹⁰ The National Tax Court proposed in Part I must be paired with reform below it.
• Supreme Court of Pakistan, Report of the Committee to Resolve Longstanding Tax Cases, final draft March 3, 2025.
• Ikramul Haq, Advocate Supreme Court, Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE), holds an LLD in tax laws.

AI Generated Summary

Part III ended with an uncomfortable asymmetry: a tax system that penalises every day of taxpayer default cannot treat judicial delay as an administrative inconvenience. The same asymmetry appears earlier in the litigation chain. A taxpayer challenging an unlawful demand pays counsel, professional time and the opportunity cost of blocked capital. When the State pursues a weak or settled case, the officer normally litigates with public money and bears little institutional consequence if the appeal fails.¹

Pakistan’s tax backlog cannot be cured simply by appointing more Appellate Tribunal Inland Revenue (ATIR) members, creating more benches or fixing shorter deadlines. If the system manufactures disputes faster than adjudicators can decide them, expanding capacity resembles widening a drain while leaving the tap open.

Section 132 of the Income Tax Ordinance, 2001 now recognises that litigation has a price. An adjournment before ATIR is permissible only for compelling reasons recorded in writing and carries costs of not less than Rs50,000. The provision is not a special penalty for taxpayers. Parliament has accepted that scarce judicial time should not be consumed without consequence.²

The principle should not end at adjournments. A high-pitched assessment can survive for years, consuming legal expense and working capital. An automatic FBR appeal can then repeat the process before the High Court and, later, the Supreme Court or Federal Constitutional Court.

The Supreme Court recorded the problem in Commissioner Inland Revenue, Lahore v The Bank of Punjab. Three forums had decided the dividend issue for the taxpayer and an earlier Supreme Court precedent covered the point. The department still pursued the matter. The Court said the authorities had wasted “time, money and effort”; persistence without cause did not engender taxpayer confidence. The petitions were dismissed with costs throughout. ³

That order should have become an administrative turning point. It did not. In March 2025 we documented how FBR petitions continued to reach the Supreme Court despite factual controversies, settled propositions or absence of a question warranting further scrutiny. Every weak revenue appeal also displaces judicial time needed for other cases. ⁴

The Mayfair Spinning Mills litigation shows the cost of endurance. The dispute arose from a sales-tax refund claim connected with cotton purchased in 1996. The Lahore High Court decided the principal issue in 2001. The department’s appeal reached final disposal in the Supreme Court only in November 2024, where the taxpayer’s legal position was upheld.⁵

Income-tax law contains a limited corrective. Section 171 provides additional payment for delayed refunds, recognising that the State’s retention of money has a time value. However, this does not reimburse the full cost of defending an inflated assessment for years, including financing costs, management disruption and uncertainty.⁶

The answer is not to frighten tax officers into never appealing. Revenue authorities must test genuinely doubtful questions of law.