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ALTERNATE DISPUTE RESOLUTION(ADR)

ALTERNATE DISPUTE RESOLUTION(ADR). Courtesy Fairness Transparency Responsiveness.

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ALTERNATE DISPUTE RESOLUTION(ADR)

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  1. ALTERNATE DISPUTE RESOLUTION(ADR)

  2. Courtesy Fairness Transparency Responsiveness The CBR is determined to achieve its goalsembodied in vision and mission to be a modern, progressive, effective, autonomous & credible organization for optimizing revenue by providing quality service & promoting compliance with tax and related laws, and in achieving the values: • Integrity • Professionalism • Team work

  3. There is paradigm shift in the working at the CBR. The CBR is considered as most investment and business friendly.

  4. The CBR’s Tax Administration Reform Program, funded by the IDA, IBRD, British Dev. Agency, and Government of Pakistan, has enabled the CBR to introduce CARE (Customs Administrative Reforms), STARR (Sales Tax Automated Repository for Refund) for Sales Tax; Universal Self Assessment Scheme in Income Tax; early refunds disposal through automation processes; reduction in litigation coupled with creating better environment for taxpayers to discharge their obligation to the state; better and conducive environment created at the LTU (Large Taxpayers Unit), MTUs, RTOs, and the functional basis of administration rather than tax basis.

  5. Litigation reduction • Appeals at the first appeals forum reduced. • Appeals at apex court level also reduced. • In the matter of introducing the Alternate Dispute Resolution mechanism in the tax laws, Pakistan is Pioneer and fore-runner. The ADR coupled with reduction in litigations (80,000 appeals were finalized at the Commissioners and Collectors level, within span of two years), and special bench of Superme Court deciding appeals, will have impact on the litigation at High court, at Tribunal level and will provide easy access to justice. This strategy is a part of the Reforms Programme which is on the right track. One example of it is that the CBR has been declared as 98% responsive in the direct tax matters (American Business Council Survey).

  6. B-Where our focus is: Position of Appeals – ITAT (Tribunal)(Direct Taxes) Appeals of both the sides.

  7. Position of Appeals- Appellate Tribunalas on 1- 12 – 05 - (Indirect Taxes)

  8. Pendency of cases in High Courts as on 31-12-2005

  9. Let me give some background of the disputes resolution in the social, civil and tax matters, in Pakistan. • Small disputes resolution in villages/rural areas through Panchiat System or elders was already there. • Dispute between the state agencies and citizens are one of the causes that justice is delayed in Pakistan. • Law & Justice Commission of Pakistan, recommended the implementation of an alternate mode of dispute resolution. In 2001 Section 47 A was added to the Sales Tax Act to provide for settlement. 4. Section 89A of the CPC was inserted in 2002 to give powers to the Civil Courts to adopt this mode, with consent. A bill is under study to provide for strengthening of the provision. Draft 89A provides for ADR through one of modes: mediation, conciliation or arbitration. Mainly at pre-trial stage but can be done during the proceedings.Tax has hybrid as first two modes are not separable. 5. Finance Act, 2004 brought about the changes in tax laws to provide for the ADR. Synchronized by the finance Act, 2005.To include Wealth Tax

  10. ADR? • In order to eliminate the delays in deliverance of justice and redressal of grievances the system of ADR is introduced. ADR is yet another example of CBR’s commitment to revamp the existing system tax administration in Pakistan. Common Complaints of taxpayers with the existing system related to lengthy litigations extending over decades. • The system of ADR aims at providing the aggrieved tax-payer with a platform for raising their disputes at a forum separate from the conventional fora. • It is out of court resolving of disputes; between the person and the institution, in tax or duty disputes. • Parties to the dispute may arrive at a mutually agreed solution of the dispute. • In ADR, there is no “Loser” or “Winner”. It is deciding disputes. In ADR, disputes is set at rest on the method of “ win-win situation for all ”. 6.Examination, Mediation, Negotiation, Conciliation, Resolution . 7. It is a hybrid system in the ADR in tax matters.

  11. Benefits of the ADR for the Institutions and the taxpayers • Reduces the burden of the courts • Saves the management time of litigants • Saves litigation costs • Controls maladministration • Avoids diversions of time in bringing cases to court • Settles disputes through people and institutions • ADR directly goes to the root of disputes instead of periphery. Seven benefits of the ADR • Preservation of Business Relationships • Better Case Management • Greater satisfaction with results/outcomes-more options • Confidentiality • Flexibility of procedure • Quicker resolutions • Lower Costs

  12. Relevant Provisions Pertaining to ADR in the tax laws INCOME TAX:SALES TAX: • Section 134 A of Section 47 A of the sales the Income Tax ordinance, Tax Act, 1990 and 2001 and Chapter X of the Sales • Rule 231 C of the Tax Rules, 2004. Income Tax Rules, 2002 CUSTOMS:FEDERAL EXCISE ACT: • Sections 195 C of Customs Section 38 of the Federal Act, 1969 and Excise Act, 2005 and • Chapter XVII of the Rule 53 of the Federal Customs Rules, 2001. Excise Rules, 2005. By the Finance Act, 2005, Wealth Tax disputes of the erstwhile Wealth Tax Laws have also been made a subject matter of the ADR

  13. Provision of Law :Section 134A of Income Tax Ordinance, 2001 – text 134A. Alternate Dispute Resolution.- (1) Notwithstanding any other provision of this Ordinance, or the rules made thereunder, any aggrieved person in connection with any matter of income tax pertaining to liability of income tax, admissibility of refund, waiver or fixation of penalty or fine, relaxation of any time period or procedural and technical condition may apply to the Central Board of Revenue for the appointment of a committee for the resolution of any hardship or dispute mentioned in detail in the application. (2) The Central Board of Revenue after examination of the application of an aggrieved person, shall appoint a committee consisting of an officer of Income Tax and two persons from a [panel comprising] of Chartered or Cost Accountants, Advocates, Income Tax Practitioners or reputable taxpayers for the resolution of the hardship or dispute. (3) The committee constituted under sub-section (2) shall examine the issue and may, if it deems necessary, conduct inquiry, seek expert opinion, direct any officer of Income Tax or any other person to conduct an audit and make recommendations in respect of the resolution of dispute as it may deem fit. (4) The Central Board of Revenue may, on the recommendation of the committee, pass such order, as it may deem appropriate. (5) The aggrieved person may make the payment of income tax and other taxes as determined by the Central Board of Revenue in its order under sub-section (4) and all decisions, orders and judgements made or passed shall stand modified to that extent and all proceedings under this Ordinance or the rules made thereunder by any authority shall abate: Provided that, in case the matter is already sub-judice before any authority or tribunal or the court, an [order passed by] the Board in the light of recommendations of the committee shall be submitted before that authority, tribunal or the court for consideration and orders as deemed appropriate [:] [Provided further that if the taxpayer is not satisfied with the said order, he may continue to pursue his remedy before the relevant authority, tribunal or court as if no such order had been made by the Board.] [ ] (7) The Board may, by notification in the official Gazette, make rules for carrying out the purposes of this section.]

  14. Procedure: Present rules prescribe the stages at which disputes could be referred to the ADR subject to the CBR’s agreement to form the Committee. • At what stage a matter can be referred for ADR? • A matter can be referred for ADR from either of the following stages: • After adjudication or assessment, i.e.; • During pendency of appeal before the Collector(Appeals) or Commissioner of Income Tax(Appeals); • After decision of appeal by the Collector (Appeals) or Commissioner of Income Tax (Appeals), i.e.; • During pendency of appeal before the Appellate Tribunal; • After decision of appeal by the Appellate Tribunal, i.e.; • During pendency of appeal before a High Court; • After decision of appeal by a High Court, i.e.; • During pendency of appeal before the Supreme Court; to be referred by; • Prescribed fee • The Alternate Dispute Resolution (ADR) does not involve any fee, charges or costs. • Time limit • There is no time limit for applying for ADR. The application can be submitted any time during the pendency of the matter before any appellate authority, tribunal or court and that it should not be a past and closed transaction.

  15. Resolving disputes out of court (through ADR) • Easy access to justice. • Reduces the burden of the courts • Saves the management time of litigants • Saves litigation costs • Controls maladministration • Avoids diversions of time in bringing cases to court • Settles disputes through people and institutions • ADR directly goes to the root of disputes instead of periphery. Seven benefits of the ADR • Preservation of Business Relationships • Better Case Management • Greater satisfaction with results/outcomes-more options • Confidentiality • Flexibility of procedure • Quicker resolutions • Lower Costs

  16. What is the ADR for the tax purposes and how does it impact the appeals and litigation? • In order to eliminate the delays in deliverance of justice and redressal of grievances the system of ADR is introduced. ADR is yet another example of CBR’s commitment to revamp the existing system tax administration in Pakistan. Common Complaints of taxpayers with the existing system related to lengthy litigations extending over decades. • The system of ADR aims at providing the aggrieved tax payer with a platform for raising their disputes at a forum separate from the conventional fora. • It is out of court resolving of disputes; between the person and the institution, in tax or duty disputes; • Parties to the dispute may arrive at a mutually agreed solution of the dispute. • In ADR, there is no “Loser” or “Winner”. It is deciding disputes. In ADR, disputes is set at rest on the method of “ win-win situation for all ”. 6.Examination, Mediation, Negotiation, Conciliation, Resolution . 7. It is a hybrid system in the ADR in tax matters.

  17. ADR Experience in Pakistan • This system is working successfully in three wings of CBR – • INCOME TAX • CUSTOMS • SALES TAX & CENTRAL EXCISE DUTY 3a. Wealth Tax disputes added. ADR has successfully resolved some very complex issues where foreign investors were involved e.g.; WAPDA vs. German Companies, Others: • DS (Pvt) Ltd. Ships arrived on 26-10-95. Bill of entry was filled on the same date, which was unusual. Connivance detected as date was changed to 29-10-95. Regulatory duty was imposed on this date. The controversy arose. Issue resolved, through ADRC recently. • Many Complex Sales Tax matters.

  18. Summary of ADR Cases as on 15.01.2006

  19. INDIA • The Government of India thought fit to amend the Civil Procedure Code. Section 89 was amended to give mandatory powers to Judges to refer matters to ADR if they thought there was the possibility of settlement.

  20. Bangladesh • The Non-Performing Assets (NPA) in the banking sector was one of the biggest problems facing the economy in Bangladesh. The figures for the total classified loans up to 30th June, 2002 stood at Tk. 24,625 crore. Of this amount, about Tk. 20,969 crore were classified as doubtful or bad debts, and represented almost 85% of the total defaulted loans. In other words, about Tk. 21,000 crore could never be recovered.

  21. Malaysia • Unlike arbitration, which has enjoyed statutory recognition since 1952, there is no statute providing for dispute resolution by way of mediation in Malaysia. It is however slowly gaining popularity in that jurisdiction.

  22. Indonesia • ADR is recognized in Indonesia and is consistent with the principle of musyawarah which is part of the national philosophy of Pancasila. ADR is compulsory before arbitration is commenced.

  23. APEC • The Asia-Pacific Economic Cooperation (APEC) forum comprises twenty one economies of the Asia-Pacific region. Created in 1989 as an informal dialogue group, APEC has evolved into an important vehicle to promote trade, investment and economic cooperation

  24. With these basic principles in mind, the work of Experts has proceeded in four key areas: Disputes between APEC governments; Disputes between APEC governments and private entities; Disputes between private entities; and avoidance of trade disputes through increased transparency.

  25. In USA, demand for ADR in the commercial sector began to grow in 1980’s as part of an effort to find more efficient and effective alternatives to litigation. Since this time, the use of private arbitration, mediation and other forms of ADR in the business setting has risen dramatically, accompanied by an explosion in the number of private firms offering ADR services.

  26. Once awareness level is raised, the small taxpayers would also prefer this mode, and appeals at the H.C. level and the Tribunal will decline. We expect figures of appeals will stage at about 8000 in 2008.

  27. ISSUES IDENTIFIED IN THE WORKSHOPS • Members Conflict OF INTEREST? • official Member may be outside Collectorates/Commissionerates. • Institutionalise the method of selecting of members and include retired judges + retired officers • If member is transferred Same member may stay. • Settle/agreement. Consensus for implementation. • The areas cannot be brought to the ADR may be specified. • Facilitate communicate dialogue to arrive at dispute resolutions. • Prompt follow up at the CBR. • Timelines for the CBR Sub-sections (2) and (4) amendment Chief justice of sindh High Court. • Not that much paper work in the ADRC. • Training Programs for the ADRC members. • Teams formation and attending DRs. Train separate set of people.

  28. 13. Notified panel expansion. 14. Delays. Cut in delays required. 15. Confidentiality of the proceedings. 16. Fee for the members. 17. The ADR v. other laws. 18. Powers with the CBR to accept or reject application or recommendation has been questioned. 19. Where courts or authorities are not granting stay 20. Mediation v. Negotiation v. Hybrid 21. Creating centers for the ADRC at Karachi, Lahore and Islamabad. 22. Pre-screening of the application by committee at the CBR before assigning the cases to the ADRC. • Professionalism and integrity.

  29. Conclusion • The ADR works on method of “discovery”; knowing weakness and strength of both the parties; through mediation or mediation and negotiation, and settlement, as compared with adversarial litigation under the traditional system. • The ADR has been termed by some taxpayers as breath of fresh air; a paradigm shift, and a window of opportunity to get easy access to justice. • Through the ADR and by reducing the litigation; the taxpayer is facilitated to pay his tax dues with certainity, accuracy and in accordance with law. The ADR will go a long way to resolve the disputes and reduce litigation. The credibility, impartiality and integrity of the ADRCs will provide impetus to the working of the ADR System.

  30. THANK YOU

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