Rs5.4tr stuck in litigation exposes structural flaws in tax appellate system

ISLAMABAD: A scathing observation by the Supreme Court of Pakistan in Commissioner of Inland Revenue, Lahore v The Bank of Punjab (2022) continues to highlight what experts describe as a deep-rooted structural crisis in Pakistan’s tax justice system, where routine and often avoidable litigation is clogging courts and eroding taxpayer confidence.

In its ruling, the apex court criticised tax authorities for “unnecessarily” consuming judicial resources despite clear findings by multiple forums, warning that such conduct undermines trust and fairness in the system.

Years later, that criticism reflects a broader institutional pattern. Tax litigation in Pakistan has become increasingly mechanical, with authorities frequently pursuing appeals even in settled matters, turning tax administration into what analysts describe as “litigation-based governance”.

The scale of the issue is significant. Pending tax cases have surged beyond Rs5.457 trillion, with more than Rs3.33 trillion stuck at the Appellate Tribunal Inland Revenue level alone. Superior courts are handling thousands of additional cases involving nearly Rs2 trillion.

The Supreme Court itself is dealing with over 3,200 tax cases worth more than Rs169 billion, while high courts collectively face a burden exceeding Rs1.9 trillion. The Lahore High Court carries the heaviest caseload among them.

In total, around 12,000 cases involving approximately Rs1.96 trillion are pending before superior courts, alongside more than 21,000 cases at tribunal level.

Experts say these figures reveal a fundamental issue: the state remains the largest litigant and a key driver of prolonged disputes. Aggressive tax assessments, ambitious revenue targets and a tendency to challenge decisions at every stage push cases through a multi-tiered system that can take years—sometimes over a decade—to resolve.

Pakistan’s tax adjudication structure involves multiple مراحل, starting from tax authorities to appellate commissioners or tribunals, then high courts, and ultimately the Supreme Court. Each layer adds delay, cost and often inconsistent interpretations, encouraging further appeals.

The absence of uniform jurisprudence across different benches further complicates matters, creating uncertainty for taxpayers and incentivising continued litigation.

To address these systemic issues, legal experts have proposed the creation of a unified National Tax Tribunal, supervised by the apex court, to consolidate adjudication and streamline appeals directly to the Supreme Court. Such a model, they argue, would reduce delays, improve consistency and discourage frivolous appeals.

Alternative dispute resolution (ADR) mechanisms, though موجود in law, remain largely ineffective due to weak implementation. Analysts say strengthening ADR through dedicated centres and professional oversight could significantly ease the burden on courts.

Technology is also seen as a critical tool for reform. While the Supreme Court has introduced limited digital measures such as video-link hearings, tax tribunals and appellate forums remain largely manual. Experts recommend digital filing systems, virtual hearings, AI-assisted case management and online dispute resolution platforms to accelerate case disposal.

International models show that structured mediation, early neutral evaluation and digital platforms can reduce litigation and improve compliance, but Pakistan’s adoption of such practices remains limited.

Beyond structural and technological fixes, observers emphasise the need for a shift in institutional culture towards fairness, accountability and proportional enforcement to reduce adversarial interactions between taxpayers and authorities.

The implications extend beyond the legal system. With trillions of rupees locked in unresolved disputes, economic activity, investor confidence and revenue collection are all affected. Constitutional guarantees of due process and equality under Articles 4, 18 and 25 are also seen as being undermined by prolonged litigation.

As the backlog continues to grow, experts warn that incremental changes will not suffice, and that comprehensive reform of the tax justice system is essential to ensure timely dispute resolution and support broader economic stability.