Mandatory ADR for SOEs After Tax Laws Amendment 202

State-Owned Enterprises (SOEs) are seeking exemptions from income tax, despite an amendment to Section 134A of the Income Tax Ordinance, which mandates SOEs to use the Alternative Dispute Resolution (ADR) process to validate their exemptions.

The ADR mechanism facilitates resolving tax disputes between SOEs and the Federal Board of Revenue (FBR).

Initially, the scheme faced challenges due to issues like FBR’s authority under Section 134A(2) to reject ADR committee decisions favoring taxpayers, taxpayers’ right to further appeal, and the composition of ADR committees, often led by FBR officials.

However, the Tax Laws (Amendment) Act, 2024, enacted on 06.05.2024, revised Section 134A. These amendments now extend to the Sales Tax Act, 1990, and the Federal Excise Act, 2005. Additionally, the financial threshold was lowered from Rs.100 million to Rs.50 million.

Notably, the amendments now require SOEs, including the Civil Aviation Authority (CAA), to mandatorily use ADR, irrespective of the Rs.50 million limit.

Previously, SOE management avoided mediation due to fear of prosecution. The new provisions protect them from legal proceedings, encouraging dispute resolution through ADR.

As ADR referral is now mandatory, SOEs also gain the right to appeal if ADR committees fail to resolve disputes within the specified time.

Consequently, the relevant appellate forum has instructed the CAA to utilize ADR or adhere to the Rules of Business to resolve its tax disputes efficientl