The Income Tax Ordinance (Third Amendment) Act, 2026, assented to by the president, revises section 134A of the Income Tax Ordinance, 2001 and brings an updated Alternative Dispute Resolution framework into force.
Pakistan’s tax litigation burden is already extremely high. At a January 2025 meeting, it was reported that 33,522 tax-related cases involving about Rs4.7 trillion were pending in courts and tribunals nationwide.
Against this backdrop, ADR is expected to reduce delays, improve revenue certainty and provide taxpayers with a faster route to closure. The decisive question is whether the amended framework will unlock settlements, or whether its design choices will choke ADR committees at the very stage where speed and flexibility are needed.
ADR can deliver only if it remains true to its purpose. It is meant to be an alternative to ordinary litigation, not a parallel version of it. Courts and tribunals apply law and precedent through strict procedure and adjudication. ADR committees should remain resolution-oriented. Their role is to narrow issues, facilitate agreement where possible, and bring disputes to a close quickly while staying within legal limits. If ADR committees are treated as mini courts, parties will arrive to argue rather than resolve, proceedings will slow down, and ADR will become another layer instead of reducing pressure on tribunals and courts.
The first structural risk in the amended framework is scalability. Given the volume of disputes, ADR is expected to grow rapidly and may require hundreds, possibly thousands, of committees over time. A mass dispute resolution mechanism cannot depend on a narrow pool of rare and high-cost specialists.
While appointing a retired high court judge or above as chairperson strengthens credibility, the added insistence that the chair must have specialised tax or commercial experience risks making committee constitution difficult in practice. Such profiles are limited in number, their opportunity cost is high, and availability will vary across regions. If chairs are hard to find, committees will be constituted late and unevenly, which chokes the pipeline before it produces relief.
The chairperson’s main value in ADR is neutrality, not technical tax mastery. Technical expertise already exists within the committee through departmental members and the taxpayers’ nominee. The departmental member brings knowledge of statutory practice and revenue implications. The taxpayer’s nominee brings case-specific technical understanding and can test the numbers and the law.
Hence, overemphasising specialisation for the chair may not improve outcomes. It may only make ADR harder to staff and pull the process closer to litigation. ADR would function better if the chair’s neutral role is strengthened through mediation or conciliation competence, supported by relevant training, rather than by treating the chair as a specialised tax adjudicator.
A second design choice that may choke ADR committees is the restrictive approach towards the taxpayer’s nominee, particularly the requirement of fifteen years’ experience for advocates. On paper, this looks like quality control. In reality, it narrows the pool and raises cost. Highly experienced tax counsel are limited and expensive. For many taxpayers, it becomes difficult to secure counsel of that seniority for ADR work. The predictable consequence is not higher quality across the board. It is repeated reliance on a small circle of names, increasing the risk of dominance by a few chambers and repeat nominations that weaken perceived neutrality. Once ADR starts to look like a closed club, participation falls and parties return to litigation, again choking ADR.
A third concern is the risk to ADR’s party-driven character. ADR should preserve taxpayer autonomy. The taxpayer should generally be free to nominate a representative of choice. Over-regulation of who a taxpayer may nominate can become self-defeating. If eligibility filters are too rigid, taxpayers will avoid ADR, leaving the mechanism underused.
Finally, the eligibility design focusing ADR primarily on tax liability of Rs50 million and above raises access and impact concerns. Taxpayers below that threshold also face hardship, recovery pressure, legal costs and uncertainty. If ADR is intended to reduce backlog and provide quicker closure, limiting it mainly to larger disputes risks turning ADR into a benefit available chiefly to higher value cases. That reduces ADR’s systemic impact, especially when the backlog is already measured in tens of thousands of cases.
Taken together, these weaknesses point in one direction. The amended framework may unintentionally produce ADR committees that are harder to constitute, more expensive and more formal than intended. When chairperson eligibility is narrowed to scarce profiles, representative thresholds raise costs, and many taxpayers remain outside the ADR door, ADR committees do not become functional. They become clogged. If ADR is implemented in a rigid, high-bar, litigation-like manner, it will not reduce the burden on tribunals and courts. It will simply create a second queue running alongside the first.
The writer is a practising lawyer based in Islamabad. She can be reached at: [email protected]
