Simple News Explanation

Pakistan’s National Assembly has passed the Income Tax (Third Amendment) Bill 2026 to improve the Alternative Dispute Resolution (ADR) system for tax-related disputes.

The government says many tax cases remain stuck in courts for years, creating delays, financial pressure, and legal complications for both taxpayers and the government. The new law aims to create a faster, fairer, and more cost-effective system for resolving major tax disputes outside traditional court proceedings.

What Changed in the Law?

New ADR System for Large Tax Disputes

The amendment allows taxpayers to apply for Alternative Dispute Resolution (ADR) in cases involving:

• Tax liability of Rs50 million or more
• Refund disputes
• Penalty and surcharge waivers
• Other specific tax relief matters

However, ADR cannot be used if criminal proceedings have already started.

The government says this was introduced to reduce lengthy litigation and provide faster settlements for major tax disputes.

State-Owned Enterprises (SOEs) Must Use ADR

The law makes ADR mandatory for State-Owned Enterprises (SOEs) involved in tax disputes.

For SOEs fully owned by the Federal Government:

• The ADR committee’s decision will be final and binding on both parties.

The government says this change will:

• Reduce unnecessary court cases
• Save public resources
• Improve settlement efficiency

Independent Three-Member ADR Committee Created

A new ADR Committee structure has been introduced consisting of:

• A retired judge as Chairperson
• A senior Inland Revenue officer
• A taxpayer nominee from approved professionals such as accountants, tax lawyers, retired tax officers, or business representatives

The government says this was necessary to improve impartiality and professional expertise in tax dispute resolution.

ADR Committee Must Decide Cases Within 90 Days

The committee is required to resolve disputes within 90 days of its appointment.

The committee can:

• Conduct inquiries
• Seek expert opinions
• Order audits
• Decide cases through majority vote

This rule was introduced because tax cases often remain unresolved for many years in courts.

Tax Recovery Automatically Suspended During ADR

Once an ADR Committee is formed:

• Recovery of disputed tax payments will automatically remain suspended until the committee gives a final decision or is dissolved.

The government says this protects taxpayers from financial pressure while disputes are being resolved.

Court Cases Must Be Withdrawn After Settlement

If a taxpayer accepts the ADR decision:

• They must withdraw all related court cases within 15 days.

Similarly:

• The Commissioner must also withdraw pending appeals after the taxpayer withdraws the case.

This was introduced to prevent duplicate litigation and finalize settlements more quickly.

Courts Can Transfer Tax Cases to ADR

The amendment allows:

• High Courts
• Federal Constitutional Court
• Supreme Court

to transfer pending tax disputes to ADR committees for settlement.

The government says this will reduce the burden on courts and help resolve disputes faster.

Appeal Rights for Some SOEs

SOEs that are not fully owned by the Federal Government can still appeal ADR decisions before:

• Federal Constitutional Court
• Supreme Court

within 60 days.

This provision was added to protect legal rights in certain cases.

New Rules for Committee Payments

The law says:

• Payment for the committee chairperson will be shared equally by the Board and the taxpayer.
• Taxpayers will separately pay expenses for their nominated representative.

This was introduced to formalize committee operations and funding.

Why This Law Was Needed

According to the Statement of Objects & Reasons, the government says the previous ADR system had weaknesses related to delays, inefficiency, and questions about impartiality. Many tax disputes remained pending in courts for years, increasing litigation costs and burdening the judicial system. The amendment aims to strengthen the ADR process, improve neutrality in committee appointments, and make dispute settlement faster and more cost-effective for both taxpayers and the government.

The government says the law will help to:

• Reduce court burden
• Speed up tax dispute settlements
• Improve fairness and transparency
• Lower litigation costs
• Improve efficiency in tax administration
• Encourage quicker settlement of disputes

Short Summary

Pakistan’s National Assembly has passed the Income Tax ADR Reform Bill 2026 to improve the Alternative Dispute Resolution system for tax disputes. The law creates independent ADR committees, makes dispute resolution faster, suspends tax recovery during proceedings, and allows courts to transfer pending tax cases to ADR for quicker settlement. The government says the reforms are aimed at reducing litigation delays, improving fairness, and making tax dispute resolution more efficient and cost-effective.