Tax Dispute Resolution in Pakistan ADR, rectification and settlement before litigation

The fastest route out of a dispute is not always an appeal

Appeals and references can take years, with recovery risk throughout. For the right disputes, quicker routes exist: correcting an obvious error, settling an issue with the department on the record, or asking an independent committee to decide. Choosing the route is a strategic decision.

The simplest route is rectification. Under section 221 of the Income Tax Ordinance, 2001, a mistake apparent from the record, such as an arithmetic error or a credit left out, can be corrected without an appeal. Some disputes can also be resolved at the assessment stage by producing evidence that was missing, or by agreeing a corrected position that is recorded in the order.

For larger disputes, section 134A provides for alternative dispute resolution. As substituted by the Income Tax Ordinance (Third Amendment) Act, 2026, a committee is formed by the Chairman FBR within 15 days of an application or a court referral. It is chaired by a retired judge and includes a senior Inland Revenue officer and a nominee of the taxpayer. For taxpayers other than state-owned enterprises, the dispute must involve a tax liability of at least Rs 50 million, and applications are barred where criminal proceedings have begun. The committee decides within 90 days, recovery is stayed while it does so, and its decision binds the Commissioner only if the taxpayer withdraws the related appeal within 60 days. Sales tax and federal excise laws have their own dispute resolution provisions.

If ADR is not suitable, the dispute continues through tax appeals and, if needed, tax litigation. When resolution depends on financial analysis, our financial modeling team can quantify the options, such as the cost of settling now against the cost and risk of continuing.