ISLAMABAD:

“We are constrained to observe that the income tax authorities unnecessarily wasted time, money, and effort which could have been better utilised for more productive causes. They discarded the clear determinations by three forums and the EFU case precedent. Such disdain and persistence without cause do not engender confidence in taxpayers nor help establish a system that treats them fairly and in accordance with the law. There is no reason to grant leave to appeal to the impugned orders and leave is refused. Resultantly, these appeals are dismissed with costs throughout” – Commissioner of Inland Revenue, Lahore v The Bank of Punjab (2022) 125 TAX 271 (Supreme Court).

This observation by the Supreme Court, even after four years, captures the structural crisis of Pakistan’s tax justice delivery system more powerfully than any policy report. The court’s frustration reflects a systemic pattern: tax litigation in Pakistan has become routine, mechanical and frequently unnecessary, consuming precious judicial time while undermining taxpayer confidence.

Pakistan’s debate on judicial reform often centres on backlog, shortage of judges and procedural delays, yet one of the most dysfunctional components of justice delivery remains the tax appellate system. Without reforming tax justice delivery, broader judicial reforms will remain incomplete.

The magnitude of the problem is staggering and now officially acknowledged at the highest level. Pending tax litigation has surged to over Rs5.457 trillion, increasing by more than 30% in just two years. Of this, over Rs3.33 trillion is pending before the Appellate Tribunal Inland Revenue, while superior courts are burdened with thousands of cases involving nearly Rs2 trillion.

The Supreme Court alone is dealing with over 3,200 tax cases involving more than Rs169 billion, while High Courts collectively face cases exceeding Rs1.9 trillion, with the Lahore High Court carrying the heaviest burden of over Rs963 billion. In total, nearly 12,000 cases involving about Rs1.96 trillion are pending before superior courts, while over 21,000 cases involving Rs3.33 trillion remain stuck at the tribunal level.

These figures, often cited as enforcement challenges, simultaneously expose an inconvenient truth: the state itself is the largest litigant and, in many cases, the principal driver of avoidable litigation. This has transformed tax administration into litigation-based governance. High-pitched assessments, unrealistic revenue targets and aggressive enforcement push taxpayers into prolonged disputes. Even when taxpayers succeed, authorities invariably pursue further appeals on settled issues. The Supreme Court’s criticism in the above case reflects a persistent institutional problem rather than an isolated instance.

Frivolous appeals consume valuable judicial time. When matters repeatedly reach the Supreme Court despite consistent findings by lower forums, it reflects systemic inefficiency and lack of accountability. Instead of resolving disputes administratively, litigation has become routine.

Pakistan’s tax adjudication structure itself compounds the problem. Disputes move from tax authorities to Commissioner (Appeals) or directly to the Appellate Tribunal Inland Revenue, then to High Courts and finally to the Supreme Court. Each stage introduces delay, inconsistency and rising costs. In many cases, disputes remain unresolved for over a decade, defeating the very purpose of taxation, which demands timely determination and collection.

Fragmentation of the appellate system has also led to inconsistent jurisprudence. Divergent interpretations by different benches encourage further appeals and deepen uncertainty. This structural flaw demands structural reform.

It is imperative that all judicial and quasi-judicial authorities in the tax appellate system be merged into a National Tax Tribunal regulated or supervised by the Supreme Court, similar to the Federal Service Tribunal. Appeals from this tribunal should lie directly to the Supreme Court, eliminating multiple layers and delay, while constitutional matters may proceed to the Federal Constitutional Court under Article 199.

Such reform would also discourage frivolous appeals. Concentration of adjudication in a specialised forum would enhance consistency and reduce unnecessary litigation. Tax authorities would be less inclined to pursue appeals without substantial legal grounds.

The failure of alternate dispute resolution mechanisms further aggravates the crisis. Although ADR provisions exist in tax laws, their implementation remains weak. Without institutional reform, ADR cannot function effectively.

Technology-driven innovation offers a practical pathway for reform. Digital filing, virtual hearings, AI-assisted case management and online dispute resolution platforms have transformed adjudication systems globally. While the Supreme Court has experimented with video-link hearings, similar transformation has not reached tax tribunals and appellate forums, where backlog is most severe. Even the Federal Constitutional Court has yet to adopt such tools. Digital adjudication platforms, electronic case tracking and virtual benches can significantly accelerate dispute resolution.

International experience provides valuable guidance. Structured mediation, early neutral evaluation and digital dispute resolution are widely used to reduce litigation. Dedicated ADR centres staffed with experienced professionals have proven effective in resolving disputes efficiently and enhancing compliance. Pakistan’s ADR framework, despite statutory backing, remains underutilised due to institutional weaknesses. Establishing dedicated tax ADR centres supported by digital platforms can significantly reduce backlog.

Beyond institutional reforms, tax justice must also rest on moral foundations. A system rooted in fairness, accountability and integrity – where authorities act justly and individuals uphold truth even against their own interest – naturally reduces disputes. Embedding such values can transform adversarial tax culture into cooperative compliance.

Tax justice is central to economic governance. Investors require predictability. When disputes remain unresolved, investment slows and economic activity suffers. Pakistan’s low tax-to-GDP ratio is partly attributable to inefficient tax justice delivery.

The constitutional dimension is equally compelling. Articles 4, 18 and 25 of the Constitution guarantee fairness, due process and equality. Prolonged litigation undermines these guarantees, while fiscal federalism also suffers when revenue remains locked in disputes.

With over Rs5.4 trillion stuck in litigation and valuable judicial time wasted on avoidable appeals, Pakistan can no longer afford incremental reform. Structural transformation supported by technological innovation and ethical governance is essential. Justice delayed is justice denied. In tax matters, delayed justice is also delayed economic development.

The writer is the Advocate Supreme Court, Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and visiting Senior Fellow of PIDE