NA Passes Bill to Strengthen Tax ADR Mechanism

The National Assembly of Pakistan has passed the Income Tax Ordinance (Third Amendment) Bill, 2026 on Thursday, introducing significant reforms to the Alternative Dispute Resolution (ADR) mechanism under the Income Tax Ordinance, 2001, with the primary aim of enhancing impartiality, transparency, efficiency, and taxpayer confidence in the ADR process.

The bill, tabled by Minister of State for Finance Bilal Azhar Kayani, was approved by a majority vote of the House. During the debate, the minister emphasised that the amendments address longstanding concerns regarding the perceived lack of neutrality in the appointment of the ADR committee chairperson and seek to alleviate the burden on appellate forums and courts by strengthening ADR as a credible, cost-effective, and expeditious alternative dispute resolution avenue.

Under the revised framework, the appointment procedure for the ADR committee chairperson has been fundamentally restructured to promote fairness and independence. Both the taxpayer and the Federal Board of Revenue (FBR) are required to propose three names each for the position. In the absence of consensus, one nominee from each side will be forwarded to the Federal Minister for Law and Justice, who shall exercise final authority in selecting the chairperson.

The chairperson must be a retired judge of a High Court, the Federal Constitutional Court, or the Supreme Court possessing relevant expertise in taxation or commercial law. This marks a departure from the previous regime, under which the FBR held unilateral authority to appoint the chairperson—an arrangement that had drawn criticism for potential bias.

The amended law also delineates the composition of the ADR committee, which shall comprise: (i) a senior Inland Revenue Service officer not below BS-21 grade; and (ii) a member nominated by the taxpayer from among qualified chartered accountants, advocates with a minimum of 15 years’ experience in tax or commercial law, retired senior Inland Revenue officers, or businessmen duly notified by the FBR. Taxpayers are expressly prohibited from nominating their existing auditors or authorised representatives involved in the dispute.

The statement of objects and reasons accompanying the bill underscores its objective to bolster the efficacy of the ADR mechanism, safeguard taxpayer rights, ensure impartial and expeditious resolution of disputes, and reduce the pendency of tax litigation before appellate authorities and courts.