In Pakistan’s current legal and economic landscape, the need for an effective and structured Alternative Dispute Resolution (ADR) system, particularly in tax matters, has become critical.
The conventional litigation model has not only overwhelmed the judiciary but has also severely impaired the state’s ability to realise tax revenues in a timely manner. Thousands of tax cases involving hundreds of billions of rupees are languishing before appellate tribunals, high courts and the Supreme Court, creating uncertainty for businesses, discouraging investment and delaying revenue recovery. A credible ADR system is now essential for easing this burden, restoring taxpayer confidence and ensuring fiscal efficiency.
Globally, ADR has become a mainstream instrument for resolving tax disputes with finality and transparency. Jurisdictions such as the United Kingdom, Canada, Australia and India have developed and successfully implemented institutional ADR frameworks to provide timely and impartial alternatives to litigation.
The UK’s HM Revenue & Customs has a well-structured tax mediation model; Canada’s Revenue Agency operates an effective early dispute resolution programme; and India’s Dispute Resolution Panels and faceless assessment schemes have significantly improved compliance and reduced litigation. These systems are supported by neutral appointments, digitised processes and enforceable outcomes, creating models that Pakistan can study and adapt.
Despite having enabling statutory provisions for ADR under Section 134A of the Income Tax Ordinance, 2001; Section 47A of the Sales Tax Act, 1990; Section 38 of the Federal Excise Act, 2005; and Section 195C of the Customs Act, 1969, Pakistan has yet to operationalise ADR in a meaningful way. The reasons for this failure are well-known: lack of transparency in constituting ADR Committees, inclusion of serving tax officers on panels, absence of qualified and neutral arbitrators, lack of digital infrastructure and the non-binding nature of ADR outcomes, especially in factual disputes. The institutional culture also favours litigation over resolution, with both tax officials and taxpayers often avoiding finality by prolonging disputes.
This structural inertia has not only paralysed tax administration but has also led to serious economic consequences. Businesses are unable to make tax provisions with certainty, public funds remain blocked and courts remain congested. The adversarial mindset further prevents constructive engagement, thereby defeating the legislative intent behind introducing ADR in tax laws.
The limited progress made through the Tax Laws (Amendment) Ordinance, 2024, which introduced mandatory ADR for state-owned enterprises, is a step in the right direction but insufficient. Without a system-wide reform and a shift in mindset, such changes are unlikely to produce sustainable results. Judicial recognition of ADR’s importance in various Supreme Court and high court decisions shows how necessary legislative and institutional reforms are to ensure ADR’s credibility and effectiveness.
The ongoing constitutional proceedings before the Supreme Court concerning the establishment and legal structure of ADR Committees could prove to be a turning point. These proceedings present a historic opportunity to establish much-needed legal standards for the functioning of ADR in tax matters in Pakistan. The court must adopt a purposive approach, ensuring that once the ADR process is initiated in good faith, it is protected from being derailed by late-stage technical objections or procedural challenges designed to frustrate its objective. Judicial support will be critical in upholding the integrity of the process and reinforcing public confidence in its outcomes.
Pakistan must now move toward establishing an autonomous and professionally managed ADR Authority, governed under a neutral statutory framework, separate from the Federal Board of Revenue. This authority should comprise leading experts in tax law, finance, accountancy, and dispute resolution, appointed through a transparent and merit-based process. The ADR panels must be free from any real or perceived influence of tax authorities.
Strict timeframes should be introduced to ensure disputes are resolved within a defined period – preferably weeks, not years – through a digital and monitored case management system. The outcomes of ADR must be recognised as binding on findings of fact, with judicial review limited to questions of law or jurisdiction.
Public awareness is also essential. The success of ADR will depend on the confidence and understanding of taxpayers, tax practitioners and officials. Awareness campaigns, stakeholder engagement and capacity building programmes must accompany legal reform. A robust and trustworthy ADR system will not only reduce litigation but will also promote a culture of voluntary compliance, enhance fiscal transparency and contribute to macroeconomic stability.
Pakistan’s tax justice system stands at a pivotal moment. By institutionalising ADR through legal, procedural and cultural reforms, and with the support of the judiciary and government, the country can transition from a litigation-heavy model to one that prioritises efficiency, fairness and resolution.
A professionally governed, independent ADR Authority, operating with transparency and equipped with the best infrastructure and expertise, can become one of the most transformative tools for unlocking tax revenue, supporting economic growth and restoring trust in the fairness of Pakistan’s tax regime.
The writer is a practising advocate of the Supreme Court of Pakistan with 25 years of legal standing. He can be reached at: [email protected]
