The Senate Standing Committee on Finance (Senate Finance Committee) has approved the Income Tax (Third Amendment) Bill, 2025, ushering in a major reform of Pakistan’s tax dispute-resolution framework. The move — aimed at enhancing transparency, reducing litigation delays, and strengthening taxpayer confidence — marks a pivotal shift in how disputes with the Federal Board of Revenue (FBR) will be handled.
What’s Changing: The New Tax Dispute Mechanism
- Independent ADRC leadership: Under the new law, the Alternative Dispute Resolution Committee (ADRC) will be chaired by a retired High Court judge — a deliberate shift to end FBR’s previous discretionary power over appointments. Taxpayers will nominate a panel of three retired judges, from which the FBR chairman must select the ADRC head.
- Faster dispute resolution: The ADRC will now be required to issue decisions within 90 days — a significant acceleration compared with past indefinite delays.
- Inclusion of public-sector entities: Government-owned companies will be newly allowed to file appeals through the ADR system, something they were previously barred from. This expands the reform’s scope beyond private taxpayers.
Officials and lawmakers emphasised that under the old system, lack of neutrality and transparency had discouraged use of ADR, contributing to mounting backlog in courts and undermining trust. The new structure is designed to restore confidence and make tax dispute settlement more accessible and efficient.
Legislative Background & Broader Context
The new amendment follows earlier moves this year. In May 2025, the committee approved the Income Tax (Second Amendment) Bill, 2025, which focused on other aspects of tax law.
Then, in late November 2025, the Senate formally solicited members’ suggestions on the Third Amendment Bill before sending it to the finance committee for review.
Separately, broader tax-recovery reforms were introduced earlier via the Tax Laws (Amendment) Ordinance, 2025, enabling immediate recovery of tax demands once upheld by higher courts — regardless of any prior stay orders.
These cumulative changes reflect the government’s push for a more rigorous, efficient, and predictable fiscal framework — a step many experts view as necessary for improving tax compliance and supporting economic stability.
Expected Impact on Business & Taxpayers
Proponents argue that the reformed ADR system will:
- Ease burden on courts by diverting tax litigation to a dedicated, faster ADR channel
- Improve business confidence and investor sentiment, offering a more predictable and timely dispute-resolution path
- Encourage broader participation in the formal system, including by public sector entities now eligible to use ADR
Should the reforms deliver as designed, stakeholders — from small taxpayers to large corporates — may benefit from lower compliance costs and decreased risk of prolonged litigation.
Challenges & Concerns Ahead
Despite the overhaul, some lawmakers cautioned about ensuring only judges with “substantial experience in tax and commercial law” head the ADRCs, to maintain credibility.
There are lingering worries over implementation: whether the FBR will genuinely comply with stricter appointment rules, meet 90-day decision timelines, and manage increased ADR caseload fairly.
Furthermore, while the ADR mechanism could reduce pressure on courts, other recent changes (e.g. instant recovery after high-court rulings) remain highly stringent and may impact taxpayers raising questions about balance between efficiency and fairness.
What Comes Next
With the finance committee’s approval, the Third Amendment Bill is expected to move to full Senate debate and, if passed, subsequently to the lower house for adoption. Once enacted, the revised ADR framework would become part of the broader 2025 tax-law regime.
For businesses, legal practitioners, and taxpayers, closely monitoring implementation — especially in the first months post-enactment — will be critical in assessing whether the intended advantages of the reform materialize.
