Tax shortfall: Over Rs4tr revenue stuck due to more than 100,000 pending cases

• As many as 6,000 tax cases pending in the Supreme Court.
• Approx 2,000 cases stuck at different tribunals and courts.
• Committee suggests binding ADR mechanism to address issue.

ISLAMABAD: Amid an expected shortfall of over Rs600 billion in the current fiscal year, it has come to the fore that more than Rs4 trillion of tax revenue is stuck due to over 100,000 pending cases in the courts, The News reported on Sunday.

The revelation was made during a meeting chaired by Chief Justice of Pakistan (CJP) Yahya Afridi on November 7, 2024, and attended by officials from the Federal Board of Revenue (FBR) and the Ministry of Finance where it was disclosed that an amount of Rs4.457 trillion in tax revenue was involved in more than 108,000 cases pending in higher courts across the country.

The development comes against the backdrop that Prime Minister Shehbaz Sharif-led government looking ahead to the first International Monetary Fund (IMF) review of the loan programme amid a Rs604 billion tax shortfall.

With the target of Rs9,168 billion agreed upon with the IMF for March 31, the FBR will need to collect Rs1,825 billion in March — a month marked by Ramadan, holidays, and fewer working days, especially leading up to Eid ul Fitr.

The tax body fetched Rs7,343 billion in the first eight months of the current fiscal year against the set target of Rs7,947 billion, witnessing a shortfall of Rs604 billion.

Official sources say that 6,000 tax cases alone are pending before the Supreme Court involving billions of rupees in potential recoveries.

Similarly, around 2,000 cases remain stuck at different tribunals and courts, where stay orders have delayed resolution for years. The inability to settle these cases promptly has not only created legal bottlenecks but also obstructed tax collection efforts, causing significant financial losses to the national exchequer.

Committee recommendations

In response to this alarming situation, the apex court formed a special committee to review the matter, identify obstacles, and propose solutions for the swift resolution of tax-related disputes.

The committee includes Registrar of the Supreme Court, Saleem Khan, Asim Zulfiqar, Governance and Public Sector Specialist Sher Shah Khan, FBR DG Law Ishtiaq Ahmed Khan and tax expert Imtiaz Ahmed Khan, who was appointed as the committee coordinator.

The committee was tasked with examining why revenue cases are piling up and suggesting institutional mechanisms to expedite their resolution. As part of its efforts, it conducted extensive consultations with key stakeholders, including the FBR, Supreme Court Bar Association (SCBA), Punjab Tax Bar Association, Federation of Pakistan Chambers of Commerce and Industry (FPCCI), and other business and industry representatives.

Officials at the meeting pointed out that one of the major reasons for this backlog is the lack of dedicated revenue benches in higher courts. The absence of an alternative dispute resolution (ADR) mechanism at the FBR, and provincial revenue departments has further compounded the problem, forcing businesses and tax authorities to resort to prolonged litigation.

Additionally, officials noted that unnecessary appeals by revenue authorities — often filed to avoid accountability or shift responsibility — are burdening the courts. 

Many appeals are lodged even when decisions have been made at two or more judicial levels, further prolonging litigation and increasing costs for both taxpayers and the government.

To address these issues, the committee has made several key recommendations, including the establishment of dedicated revenue benches in the SC and high courts to focus exclusively on tax-related cases; implementation of a binding ADR mechanism at FBR to resolve tax disputes outside of court; restricting revenue authorities from appealing cases where decisions have already been made at two judicial levels; ensuring strict adherence to case disposal timelines to prevent unnecessary delays; creating a centralised case law database so that courts and tribunals can quickly dispose of similar cases based on established legal precedents; utilising technology to streamline case management, ensuring that cases with similar legal questions are heard together.

The committee's findings highlight the urgent need for judicial and administrative reforms to prevent tax litigation from dragging on for years. The continued pendency of revenue cases not only delays justice but also hinders economic growth by keeping billions of rupees in limbo.

To facilitate stakeholder input, a WhatsApp group was also created where business leaders, tax officials, and legal experts were invited to share their suggestions.

The committee is expected to present its final report soon, outlining specific steps to unblock the revenue pipeline and ensure that the justice system functions more efficiently.

With Pakistan's economy already struggling with fiscal deficits and low tax collection rates, experts warn that failing to resolve these cases swiftly could further strain the country’s financial health.

The top court’s intervention, alongside systemic legal reforms, is seen as the only viable path to ensuring tax justice and financial stability in the country.