High-revenue tax cases fixed hastily out of turn

ISLAMABAD: Many high-revenue tax cases involving billions of rupees, including those relating to foreign assets, have been fixed out of turn hastily, top officials in the FBR said on Monday.

They argued that all was done without providing an adequate opportunity to be heard at the forum of the Appellate Tribunal in Karachi, as a tax amount of Rs 25 billion was involved, but deliberate efforts were being made to clear the cases from the Tribunal as early as possible.

Top sources said that the chairman of the Appellate Tribunal was going to complete his term this week. This scribe had sent out questions to certain relevant officials, including FBR and ATIR, last week but got no response till the filing of this story on Monday.

The sources said that there was haste in fixing high-revenue cases, which raised many eyebrows within the ranks of the tax machinery and other relevant stakeholders, wherein the benches were constituted, then reconstituted for some particular cases that were fixed, and then heard on the same single day.

The official said that in this way, glaring violations of law and court procedures were allegedly committed in certain cases, but no one is being held accountable for the illegalities. The Capital Value Tax (CVT) was imposed in the Finance Act 2022 on persons for having foreign assets over Rs 100 million on the eve of the last budget for 2022–23. The imposition of such a CVT on foreign assets generated a tax demand of Rs 25 billion in one tax office in Karachi, out of which the FBR has so far collected Rs 5 billion. This law was challenged by the Sindh High Court and the Lahore High Court, but it was upheld by these two courts.

The former law minister in the PTI-led government had hired members of appellate tribunals from lawyers on a three-year contract basis all over the country, allegedly without following the due process of advertising such vacancies.

At the twilight of their contractual obligations, some interesting but unique happenings had taken place in the last week as the bench was constituted: certain cases were fixed and even heard on the same day.

The hearing of four cases of CVT was fixed in the tribunal on March 29, 2023, on which the appeals were filed by taxpayers just eight days ago, but these cases were fixed allegedly out of turn while the Karachi tribunal has a pendency of decades-old cases.

The main focus of the appeal in these cases was the point that the CVT could not be imposed on assets declared under amnesty. Interestingly, the Appellate Tribunal of Inland Revenue (ATIR) is listening to this point even though it has already been decided by high courts. In this environment of unusual urgency in certain cases in the Karachi Tribunal, the FBR sought time to file written comments to thwart the unwarranted outcomes of such urgency, but a very short time was given to them.

Sharing details of one such case, the official said that in one case involving revenue of Rs 1.2 billion, a two-member bench heard the case and reserved it for order. But for unknown reasons, the official sources said that the bench was dissolved and the case was fixed on the special bench of the tribunal, allegedly against all rules of the tribunal. The department (FBR) has raised questions on the procedure of the tribunal to bring it on the record.

The hiring in the Appellate Tribunal on a contract basis was done to resolve litigation speedily, but the very objective was compromised at the cost of the national exchequer, alleged the official.

There is a need to analyse the performance of those inducted on a contract basis to get a clearer picture, as there was a perception in the ranks and files of the tax machinery that the members hired from the private sector without fulfilling due process of meritocracy largely remained unable to discharge their basic responsibilities in true letter and spirit.

There is no concept or mechanism in place to thwart corruption in ATIR, resulting in the siphoning off of billions of dollars in revenues for personal considerations. It is urgently needed to put in place a performance appraisal and integrity management system in ATIR to save the public treasury.

It is to be noted that ATIR is the highest forum to resolve points of fact in tax cases. Appeals can be filed in high courts and the Supreme Court only on points of law and not on any points of factual determination.

Another FBR official said that the CVT has been levied on super-rich persons. It’s leviable on persons having foreign assets over Rs 100 million. It is a direct tax. It cannot be passed on to the poor; it has to be borne by the super-rich themselves. This tax is payable to only 5,000 individuals.

It is interesting to note that more than 1,200 people are contesting the constitutionality of this law. Whereas the enhanced rate of sales tax from 17% to 18% is leviable on 220 million people and there is not a single public interest petition on the issue.

This is a prime example of “elite capture” of society. It is interesting to note that recently the IMF and MD have condemned this attitude in Pakistani society. It is the general perception that law implementation mechanisms are favourably biased toward the elite.

This tribunal’s proceedings are another example of the poor state of affairs where super-rich people are expected to get undue and illegal relief despite decisions to the contrary by high courts.

The official said that a few super-rich people are arguing that foreign assets whitened by paying a two percent tax under amnesty are exempt from CVT, whereas foreign assets created by honest taxpayers after paying 35% tax are subject to CVT.

Any favourable decision by the Tribunal on such an absurd interpretation would be another black spot on the legal history of taxation, concluded the officials.