Mohsin Siddiqui (Chief Reporter)
Pakistan’s tax dispute landscape, President Asif Ali Zardari has upheld the decision of the Federal Tax Ombudsman (FTO) regarding the cases involving major telecom operators.
The President’s order confirmed that there was no maladministration on the part of the Federal Board of Revenue (FBR) during the implementation of the recommendations made by the Alternate Dispute Resolution Committee (ADRC). This decision has effectively closed a contentious chapter for the telecom companies that have been embroiled in tax-related disputes spanning several years.
The backdrop of this case is rooted in the long-standing tax disputes between the telecom operators and the FBR. These companies, engaged primarily in providing cellular telecommunication services across Pakistan, have been facing challenges related to amendments in their income tax returns for the tax years ranging from 2006 to 2017. These amendments led to a reduction in the companies’ assessed tax losses, which in turn forced them into a prolonged litigation battle with the Large Taxpayer Office (LTO).
Tired of the ongoing legal struggles, the telecom companies decided to seek a resolution through the Alternate Dispute Resolution Committee (ADRC). The ADRC, established under Section 134A of the Income Tax Ordinance, 2001, offers a mechanism to resolve tax disputes outside the traditional appellate process. The companies hoped that this route would provide a quicker and more amicable resolution to their disputes, which were pending before various appellate forums.
After careful deliberations and considering the evidence presented, the ADRC issued recommendations aimed at settling the disputes. According to the complainant companies, these recommendations were contingent upon a payment of Rs 8.25 billion. The ADRC further advised that this payment could be made against the income tax demand or liability of any tax year between 2009 and 2021.
The telecom companies complied with the ADRC’s recommendations and, after fulfilling all the necessary requirements, approached the concerned commissioner to give effect to the ADRC’s order. However, the Deputy Commissioner of Inland Revenue (DCIR) rejected their plea. The complainants argued that this rejection violated their legal rights and the justice due to them under the ADRC ruling. They claimed that the DCIR had unlawfully declared the ADRC’s recommendations as null and void, which led them to file a complaint with the Federal Tax Ombudsman (FTO).
The FTO, after conducting a thorough investigation, made some critical observations in the case. The FTO noted that the ADRC’s recommendations had clearly stipulated that the payment of Rs 8.25 billion was to be made against income tax liabilities for any year between 2010 and 2020. However, records revealed that the payment of Rs 3.25 billion was made against the tax liability of the year 2021. The FTO highlighted that there were no tax arrears outstanding for the tax year 2021 on the date when the ADRC’s decision was made. Therefore, the FTO concluded that the department’s stance, which argued that no demand for the tax year 2021 existed at the time of the ADRC’s decision on November 10, 2021, was valid. The FTO agreed that the payment made by the telecom companies was against a future tax liability, not the arrear demand as stipulated by the ADRC.
Further scrutiny of the records showed that when the complainants approached the tax office to enforce the ADRC’s recommendations, their request was thoroughly examined. The tax authorities disagreed with the complainants’ interpretation and passed an order detailing the reasons for not implementing the ADRC’s recommendations. This decision was made after considering extensive written correspondence and lengthy discussions with the tax authorities.
Ultimately, the FTO concluded that the payment of Rs 3.25 billion made by the telecom companies was not in line with the ADRC’s recommendations, as it was made against the tax liability for the year 2021, which was not part of the ADRC’s ruling. The FTO’s findings effectively dismissed the telecom companies’ claims, leading them to file a representation before the President of Pakistan.
On August 12, 2024, President Asif Ali Zardari issued his final decision, upholding the FTO’s ruling. The President’s order confirmed that the FBR had not committed any maladministration during the implementation of the ADRC’s recommendations. This decision marks the end of a complex tax dispute for the telecom operators, reinforcing the stance taken by the FTO and the FBR.
The President’s endorsement of the FTO’s decision underscores the importance of adherence to procedural and legal requirements in tax matters. For the telecom companies involved, this decision represents a significant setback, as their efforts to contest the FBR’s actions have been unsuccessful at the highest level. This case serves as a reminder of the complexities inherent in tax disputes and the challenges that businesses face in navigating the legal landscape.
