“It is to be noted that appeals should not be filed as a matter of routine or because a decision has been rendered against the Department. Decisions should be taken on a reasonable basis. It is not advisable for government departments to waste public time and money by filing appeals routinely”—Pakistan through Chairman of FBR and Others v Hazrat Hussain and Others118 TAX 260 (Supreme Court)

his clear direction of the Supreme Court has remained largely unheeded. Instead of exercising restraint, the Federal Board of Revenue has institutionalised a culture of frivolous appeals, converting litigation into an extension of assessment. The result is a system where disputes are not resolved but multiplied; adjudication is delayed; and accountability is conspicuous by absence.

Pakistan’s tax litigation crisis does not stem merely from backlog. It is rooted in the conduct that generates it. More than Rs 5.4 trillion remains locked in tax litigation across forums. This is not just a number—it represents immobilised fiscal space, deferred economic activity and persistent fiscal mis-governance. The dominant narrative, however, continues to present this as an enforcement challenge, obscuring a more fundamental reality: the state itself, through its tax agencies, is the principal litigant and the primary source of avoidable disputes.

The pattern is entrenched. Driven by targets that reward additions rather than sustainability, assessments are framed excessively, often disregarding settled law. Many such additions collapse at appellate stages. Yet the response is not correction but continuation. Appeals are filed as a matter of routine, even on issues already settled by superior courts. Litigation thus becomes self-perpetuating, feeding on its own outcomes.

The Supreme Court has repeatedly expressed concern over FBR’s conduct. From Hazrat Hussain to Bank of Punjab cases, the message has been consistent: routine appeals waste public time and erode confidence in the system. Despite this, there is no institutional learning. Persistence of frivolous appeals suggests that the problem lies in the absence of consequence.

Absence of consequence for FBR defies a functioning legal system in which frivolous litigation attracts heavy costs and damages, especially when the conduct is egregious. In Pakistan, costs remain nominal, rarely enforced and almost never recovered in a meaningful sense. Tax authorities litigate without financial accountability, effectively passing the cost of their actions onto taxpayers and the judiciary. This has created a distorted incentive structure.

There is little reason for restraint when the institutional cost of losing a case is negligible. Matters travel through multiple forums over years, consuming judicial time and public resources.

Had realistic costs—linked to actual litigation expense been imposed and recovered from departments or private litigants responsible for filing frivolous cases, the volume of unnecessary litigation would have declined sharply.

Comparative practice reinforces this point. In several jurisdictions, courts do not function entirely at the expense of the state. Litigation carries real financial consequences, and parties—whether private or governmental—bear the cost of invoking judicial time. This contributes both to financial sustainability and to discipline in litigation. The United Kingdom offers a notable example. There robust cost regimes ensure that misuse of judicial process carries consequences. Institutional arrangements maintain operational independence of courts without routine reliance on executive discretion.

Pakistan’s system operates on the opposite premise. Government departments litigate freely, often without internal accountability. The judiciary absorbs the burden, ultimately borne by taxpayers. This asymmetry not only clogs the system but also undermines its credibility.

The issue is further compounded by structural features of the tax appellate system. Disputes move from tax authorities to Commissioner (Appeals) or to the Appellate Tribunal for Inland Revenue, at the option of taxpayers. On law points, appeals go to High Courts and ultimately the Supreme Court. Absence of a unified forum leads to fragmented jurisprudence, encouraging further appeals. Structural reform is therefore unavoidable.

Consolidation of all tax adjudicatory functions into a National Tax Court, operating under the supervisory jurisdiction of the Supreme Court, offers a viable path. By reducing tiers and concentrating expertise, such a forum can restore coherence and predictability. Appeals, confined to substantial questions of law, should lie directly to the Supreme Court through leave, eliminating prolonged cycles of review.

Structural reform alone may not suffice unless accompanied by behavioural change. Without imposing real costs on frivolous litigation, even a streamlined system will reproduce existing inefficiencies.

A more difficult, but equally necessary dimension relates to incentives within the legal system itself. It has long been observed that both bar and bench operate within a structure where increased litigation sustains professional activity. More cases translate into more work for lawyers and, inevitably, expansion of judicial capacity. While seldom acknowledged openly, this forms part of the ecosystem that resists fundamental reform.

In this context, the question of conflict of interest assumes particular significance. It remains a matter of concern that close relatives of serving judges continue to practice in the same courts, appearing in tax cases on behalf of the FBR. Although they do not appear before the judges concerned, the perception of proximity raises legitimate questions. As noted earlier in these columns, continued operation of law practices linked to serving judges and the rapid accumulation of wealth by such practitioners, has attracted public criticism.

Comparative experience again offers guidance. In India, explicit prohibitions prevent lawyers from practicing in courts where their relatives serve as judges. Instances where judges sought transfer or where relatives voluntarily shifted practice reflect a culture of institutional propriety. No such framework exists in Pakistan. Absence of clear rules allows practices that undermine confidence in impartial adjudication.

The issue is not merely ethical; it is systemic. Justice must not only be done but also be seen to be done. Where perceptions of advantage persist, public trust erodes. Any meaningful reform must therefore address conflicts of interest with clarity and resolve.

Failure of alternative dispute resolution (ADR) mechanisms reflects another dimension of the problem. Despite statutory provisions, ADR remains marginal. This is less a failure of design than of intent. Where the system is oriented towards adversarial contest, negotiated settlement remains peripheral.

Technological reform, though frequently discussed, has yet to penetrate the areas where it is most needed. While superior courts have experimented with virtual hearings, tax tribunals continue to operate through outdated processes. Digital case management, electronic filings and virtual benches can significantly reduce delay, yet progress remains uneven.

Underlying all these issues is the broad question of governance. A tax system premised on coercion rather than fairness inevitably generates resistance. The alternative lies in building a culture of compliance grounded in equity and accountability. Where administrative action is perceived as fair, litigation declines; where it is seen as arbitrary, disputes multiply.

The constitutional implications are equally significant. Guarantees of due process and equality require not only access to forums but effective and timely adjudication. Prolonged litigation undermines these guarantees in substance. Moreover, when vast revenues remain locked in disputes, fiscal governance itself is impaired.

The persistence of over Rs 5.4 trillion in pending tax litigation, as per FBR, is not a temporary aberration, it is the outcome of a system that has normalised inefficiency and insulated itself from consequence. Addressing it requires more than procedural reform. It demands a reconfiguration of incentives, enforcement of accountability and restoration of ethical balance.

Supreme Court’s warnings in Hazrat Hussain and Bank of Punjab cases remain as relevant today as when these were issued. Appeals should not be filed as a matter of routine. Until that principle is enforced through real consequences—financial, institutional and ethical—the system will continue to generate disputes faster than it can resolve them. Justice, particularly in fiscal matters, cannot survive without accountability. Until those who misuse the system are made to bear its cost, tax justice will remain delayed and denied.

The writers are lawyers, adjunct faculty at Lahore University of Management Sciences and members of the advisory board of Pakistan Institute of Development Economics