Simple News Explanation

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

The government says the previous system had problems related to delays, fairness, and inefficiency in resolving tax cases. The new law aims to make tax dispute settlement faster, more transparent, and less expensive while reducing pressure on courts.

What Changed in the Law?

Stronger Alternative Dispute Resolution (ADR) System Introduced

The amendment replaces Section 134A of the Income Tax Ordinance and introduces a new ADR mechanism for resolving tax disputes.

Taxpayers can now apply for ADR in disputes related to:

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

The government says this was introduced to avoid long court battles and resolve disputes more efficiently.

State-Owned Enterprises (SOEs) Must Use ADR

Under the new law, State-Owned Enterprises (SOEs) are now required to use the ADR mechanism for tax disputes.

Earlier, SOEs could directly continue lengthy litigation in courts.

The government says this change will:

• Reduce unnecessary legal disputes
• Speed up settlements
• Lower financial burden on the state

For SOEs fully owned by the Federal Government, the committee’s decision will be final and binding.

Independent ADR Committee Structure Created

The law creates a new three-member ADR Committee that will include:

• A retired High Court, Federal Constitutional Court, or Supreme Court judge as Chairperson
• A senior Inland Revenue officer
• A nominee selected by the taxpayer from approved professionals such as:
  • Chartered accountants
  • Cost accountants
  • Tax lawyers
  • Retired tax officers
  • Business representatives

The government says this structure was needed to ensure neutrality and professional expertise in dispute resolution.

Committee Must Decide Cases Within 90 Days

The amendment requires the ADR Committee to resolve disputes within 90 days of appointment.

The committee can:

• Conduct inquiries
• Seek expert opinions
• Order audits if needed
• Decide matters through majority vote

This was introduced because tax disputes often remain pending for years in courts.

Recovery of Tax Automatically Stayed During ADR

Once an ADR Committee is formed:

• Recovery of disputed tax will automatically remain suspended until the committee gives its decision or is dissolved

The government says this protects taxpayers from financial pressure while the dispute is being resolved.

Court Cases Must Be Withdrawn After Settlement

If the taxpayer accepts the committee’s decision:

• They must withdraw all related court cases within 15 days

Similarly:

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

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

Appeals Allowed for Some SOEs

The amendment allows certain SOEs that are not fully owned by the Federal Government to appeal ADR decisions before the Federal Constitutional Court or Supreme Court within 60 days.

This was added to protect legal rights in special cases.

Courts Can Refer Cases to ADR

The law allows:

• High Courts
• Federal Constitutional Court
• Supreme Court

to transfer pending tax disputes to ADR committees for settlement.

The government says this will help reduce the burden on courts and speed up dispute resolution.

New Rules for Committee Payments

The Board can now decide remuneration for committee chairpersons, which will be shared equally by:

• The Board
• The taxpayer

The taxpayer will separately pay expenses of their nominated representative.

Why This Law Was Needed

According to the Statement of Objects & Reasons, the government says Pakistan’s previous ADR system had weaknesses related to impartiality, delays, and procedural inefficiencies. Many tax disputes remained stuck in litigation for years, increasing pressure on courts and creating financial uncertainty for taxpayers and the government. The amendment aims to create a faster, more neutral, and cost-effective system for resolving tax disputes outside traditional court proceedings.

The government says the law will help to:

• Reduce court burden
• Speed up tax dispute resolution
• Improve fairness and neutrality
• Lower litigation costs
• Improve tax administration efficiency
• Encourage quicker settlements

Short Summary

Pakistan’s National Assembly has passed the Income Tax (Third Amendment) Bill 2026 to strengthen the Alternative Dispute Resolution system for tax disputes. The law creates independent ADR committees, makes dispute settlement faster, and allows courts to transfer tax cases to ADR for quicker resolution. The government says the reforms will reduce litigation delays, improve fairness, and make tax dispute resolution more efficient and cost-effective.