FEDERAL TAX OMBUDSMAN: ROLE & CHALLENGES---[RE-EDITED]

FEDERAL TAX OMBUDSMAN: ROLE & CHALLENGES---[RE-EDITED] victims should go and seek "justice" through Courts by paying huge fees to tax counsel and waiting for years to get relief. This issue needs immediate attention of the people who matter in the land. If F.T.O. cannot check the highhandedness and maladministration of tax officials, the day is not far when the taxpayers will be further disillusioned losing the last hope of justice against oppression, tyranny and highhandedness of the tax officials. In a retrogressive move, President Pervez Musharraf has held in the case of Chenab Fibers Ltd, Faisalabad that F.T.O. has no jurisdiction to investigate matters relating to assessment of income or wealth, determination of tax or duty liability, classification or valuation of goods, interpretation of law pertaining to cases where legal remedy of appeal and review or revision is available under relevant legislation. The President issued this order on a presentation of C.B.R. against the findings of F.T.O. on the complaint of Chenab Fibers Ltd., Faisalabad. C.B.R. has also received numerous orders of similar nature in many other cases through Ministry of Law and Justice restricting jurisdiction of F.T.O. Commenting on President's order, C.B.R. official, according to a report published in Business Recorder (November 20, 2003), claimed that over 90 per cent of F.T.O.'s decisions are in violation of President's order and F.T.O. office needs to follow President's instructions. All such cases on which the F.T.O. has given findings actually tall within the jurisdiction of Appellate Tribunals (Appeals), High Court, Supreme Court and not the F.T.O. The primary objective behind the establishment of F.T.O. office was to remove the grievances and hardships of small taxpayers. Contrary to this, big multinational companies and establishments are approaching F.T.O., C.B.R. officials asserted. The text of the President's order issued by Law, Justice and Human Rights Division reads as under: The President has been pleased to pass the following order: Section (9) (2) (b) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000 provides that the Federal Tax Ombudsman shall not have jurisdiction to investigate or inquire into matters which relate to assessment of income or wealth, determination of liability of tax or duty classification or valuation of goods, interpretation of law, rules and regulations relating to such assessment, determination, classification or valuation in respect of which legal remedies of appeal, review or revision are available under the relevant legislation. It is an admitted position that when the complaint was made the matter raised in the Division's recommendation that the recommendations of the F.T.O. are hit by the provisions of section 9(2)(b) ibid is well founded. Accordingly, the President has been pleased to accept the representation of the Commissioner and set aside the F.T.O.'s. findings in Complaint No. 1590 of 2002". The collection of taxes where it is not due is as deplorable as its non-collection where it is due. The C.B.R. is doing exactly the opposite. It is not collecting taxes where it is due i.e. from civil-military bureaucracy, absentee landlords, corrupt politicians and greedy businessmen. C.B.R. is a handmaid of these classes and no mechanism exists for filing any complaint by public at large against them with the F.T.O. Presently, the complaints are filed only by those taxpayers who are not willing to "cooperate" with the tax officials. Data relating to number of complaints filed and disposed of by the F.T.O. since its inception [see Table below] portrays an interesting phenomenon that with every passing day more and more people are gathering courage to seek legal redress of their grievance from the F.T.O. It means that this institution has effectively weakened the bargaining power of the entire tax apparatus. Table: Year-wise complaints filed and disposal Year No. of complaints Disposed Balance 2000 72 72 0 2001 1782 1782 0 2002 1549 1518 31 2003 till 1469 885 584 15th Oct. TOTAL 4872 4257 615 The taxpayers are now increasingly declining offers of tax officials for paying fixed percentage for obtaining refunds which they can get free of cost, courtesy the prompt and effective actions by the F.T.O. This has obviously haggard the C.B.R. and its field organisations. In the new Income Tax- Law they have intentionally made even refund payments subject to order by the Commissioner. This will preclude, according to the interpretation of C.B.R. and as confirmed by the President, the jurisdiction of F.T.O. to hear any complaint under section 9(2) of the Ordinance because it will be an order subject to appeal. The Federal Tax Ombudsman held in a number a cases that section 9(2) is not a bar to investigate any action or order which is palpably, deliberately and apparently unlawful and without any authority. This interpretation by the F.T.O. needs remedial and curative amendment in law. The jurisdiction of F.T.O. is defined in section 9 of the Ordinance and the relevant parts read as under: "Jurisdiction functions and powers of the Federal Tax Ombudsman.---(1) Subject to subsection (2), the Federal Tax Ombudsman may on a complaint by any aggrieved person, or on a reference by the President, the Senate or the National Assembly, as the case may be, or on a motion of the Supreme Court or a High Court made during the course of any proceedings before it or of his own motion, investigate any allegation of maladministration on the part of the Revenue Division or any Tax Employee. (2) The Federal Tax Ombudsman shall not have jurisdiction to investigate or inquire into matters which (a) are subjudice before a Court of competent jurisdiction or Tribunal or Board or Authority on the date of the receipt of a complaint, reference or motion by him, or (b) relate to assessment of income or wealth, determination of liability of tax or duty, classification or valuation of goods, interpretation of law, rules and regulations relating to such assessment, determination, classification or valuation in respect of which legal remedies of appeal, review or revision are available under the relevant legislation," The term "maladministration" is defined in section 2(3) of the Ordinance as under: (i) a decision, process, recommendation, act of omission or commission which‑ (a) is contrary to law, rules or regulations or is a departure from established practice or procedure, unless it is bona fide and for valid reasons; (b) is, perverse, arbitrary or unreasonable, unjust, biased, oppressive, or discriminatory; (c) is based on irrelevant grounds; or (d) involves the exercise of powers, or the failure or refusal to do so, for corrupt or improper motives, such as bribery, jobbery, favouritism, nepotism and administrative excesses; (ii) neglect, inattention, delay, incompetence, 'inefficiency inefficiency and inaptitude, in the administration or discharge of duties and responsibilities; (iii) repeated notices, unnecessary attendance or prolonged hearing while deciding cases involving assessment of income or wealth; (a) determination of liability of tax or duty; (b) classification or valuation of goods; (c) settlement of claims of refund, rebate or duty drawback; or (d) determination of fiscal and tax concessions or exemptions. (iv) wilful errors in the determination of refunds, rebates or duty drawbacks; (v) deliberate withholding or non-payment of refunds, rebates or duty drawbacks already determined by the Competent Authority; (vi) coercive methods of tax recovery in cases where default in payment of tax or duty is not apparent from record; and (vii) avoidance of disciplinary action against an officer or official whose order of assessment or valuation is held by a competent Appellate Authority to be vindictive, capricious, biased or patently illegal. A cumulative reading of the above two provisions supports the view taken by the F.T.O. that its jurisdiction certainly extends to matters where any action of the tax officials is arbitrary and void ab initio. It will be an ugly joke to say that F.T.O. cannot interfere in a matter of explicit illegality committed by a Tax Employee because the taxpayer has a right to appeal or other alternate remedy. Such an order itself testifies to the "maladministration" committed by Tax Employee. The contrary ruling of the President is not based on correct reading of law and is also against the well-established principles of interpretation of statutes that all the sections of a law are to be read as whole and need to be harmonized. The following editorial published in Business Recorder of 13th November, 2003 highlights the legal controversy over the matter of jurisdiction prevailing between the F.T.O. and the C.B.R.: "Unfortunately, however, F.T.O.'s decisions are increasingly being blocked through the appellate mechanism. The Appellate Authority against the F.T.O.'s decisions is the President, just as in the case of the Federal Ombudsman. The President's office has been receiving appeals from the tax departments against every other order of the F.T.O., and setting them aside in most cases on grounds of 'established practice' or lack of jurisdiction. In fact, in a written reply to the F.T.O. in the present case, the Collector of Sales Tax has referred to F.T.O. Complaint 429-K/2001, arguing that a decision of any agency based on established practice did not amount to mal administration; and a bona fide decision based on valid reasons, too, did not amount to maladministration. The F.T.O. has given a weighty rebuttal to that argument, stating that "the contention that the department has followed an established practice is not maintainable. Even if in some cases, recovery/adjustment has been made and the objections of the registered persons not heard or overruled, it cannot be termed as an established practice as it violated due process of law as prescribed in section 36 of the Sales Tax Act. "In addition to making eminent legal sense, these assertions by the F.T.O. underline the need for change in the existing procedure of maintenance of an appeal. A relevant example is already there to be followed. Some time ago, exasperated over the increasing speed with which the Federal Ombudsman's orders were being set aside by the President, the Supreme Court was asked to adjudicate the issue. The Court held that the President's decision must be accompanied by a "speaking order". In other words, rather than using a vague terminology to throw away a decision announced by the Ombudsman, he had to cite specific reasons for it. The same procedure should apply to F.T.O.'s decisions". There is an urgent need to give a proactive role to F.T.O. to help in settling disputes between taxpayers and C.B.R. through an informal mechanism. Not only will it take off lots of pressure from our higher Courts but will also save time and money of both the taxpayers and C.B.R. There are certain areas where the F.T.O. needs to expand its role e.g. section 33 of the Ordinance. This section reads as under: "Informal resolution of disputes.---(1) Notwithstanding any-thing contained in this Ordinance, the Federal Tax Ombudsman and authorized Staff Members shall have the authority to informally conciliate, amicably resolve, stipulate, settle or ameliorate any grievance without written memorandum and without the necessity of docketing any complaint or issuing any official notice." In 1993, the Legislature introduced the idea of Settlement Commission in the Income Tax Ordinance, 1979 (now repealed) to facilitate informal dispute resolution in tax matters. The similar idea was later on incorporated in indirect taxes. In June, 2000, the provisions relating to Settlement Commission were deleted with the view that the F.T.O. would take care of this mechanism. However, in the last three years negligent number of cases has been taken up under section 33 of the Ordinance. The most neglected area regarding expansion of F.T.O.'s role is lack of any studies or research to find out the causes of corrupt practices and injustice as envisaged in section 9(4) of the Ordinance: The main objective behind establishing the office of F.T.O. was "to diagnose, investigate, redress and rectify any injustice done to a person through maladministration by' functionaries administrating tax laws". Individual complaints are only symptoms indicating malfunctioning of the system. The F.T.O. is duty bound to redress and rectify injustice caused to each individual/entity on a complaint or by taking suo motu action. However, it should not confine itself to merely treating symptoms and ignoring the main causes of malfunctioning. The more complaints the F.T.O. receives, the more badly it reflects on the performance of C.B.R. These two institutions should strive hand in hand in making the system credible, which will be gauged by the gradual decrease in the number of complaints in the future. F.T.O.'s more proactive, meaningful and beneficial role is mentioned in section 9(4) of the Ordinance which reads as under: "For carrying out the objectives of this Ordinance and, in particular for ascertaining the causes of corrupt practices and injustice, the Federal Tax Ombudsman may arrange for studies to be made or research to be conducted and may recommend appropriate steps for their eradication." The more formidable challenge before the F.T.O., C.B.R. and the State is to eradicate causes of corrupt practices and injustice for which complete overhauling of tax apparatus is a prerequisite. First of all tax officials deserve a fair deal and thereafter the most effective system of accountability should be enforced. On the other end,' the taxpayers should be given a Charter of Rights, facilities, justice and legal protection and thereafter an exemplary system of punishment for tax evasion needs to be introduced. Besides the relationship of bad faith and mistrust between the interest of the ruling class to make tax laws beneficial to them and cumbersome for the masses. In this regard the F.T.O. can play a role by suggesting to the President to provide adequate checks against the lawmakers under Article 162 of the Constitution before they pass any law against public interest. On the recommendation of the F.T.O., the President may constitute an independent body e.g. Citizens for Tax Justice (C.T.J.). C.T.J.'s mission would be to give ordinary people a greater say in the development of tax laws and protecting them against the armies of special interest lobbyists e.g. absentee landlords, big corporations and the wealthier sections of society. C.T.J. would fight for: fair taxes for middle and low-income families; requiring the privileged and mighty to pay their fair share; plugging corporate tax loopholes; adequately funding important public services; reducing federal debts; and tax policies for rapid industrialization, creation of job opportunities and minimizing distortion of economic markets. Tax professionals should also play a positive role by educating their clients about correctly arranging their tax and commercial matters. The members of Institute of Chartered Accountants of Pakistan and other bodies like ICMA and Tax Bars all over the country can play a significant role in enhancing business performance and better tax compliance through knowledge and service of the highest professional standards. The example of Institute of Certified Public Accountants of Singapore can be followed as in recent years it laid down great emphasis on building a professional image. All the stakeholders should work jointly to strengthen the institution of the F.T.O., which alone can act an effective watchdog because of its independent status and financial autonomy. It can also serve as the best forum for informal dispute resolutions between tax officials and taxpayers. The C.B.R. should cooperate with the F.T.O. in this regard. The F.T.O. can also create public awareness to safeguard the interests of masses against formulation of any fiscal policies by vested interest and ruling elites. If we wish to join the rank of civilized countries, institutions like the F.T.O. should be respected and strengthened.