Early resolution of commercial disputes to attract investment

October 05, 2022

Abdul Wajid Khan

The government of Pakistan needs to develop a strong, modern and efficient alternate dispute resolution (ADR) mechanism to attract foreign direct investment in the country for sustainable economic growth, WealthPK reports.

The former chairman of Customs, Federal Excise and Sales Tax Appellate Tribunal and senior adviser to Federal Tax Ombudsman Hafiz Ahsaan Ahmad Khokhar told WealthPK that there was a dire need to improve dispute resolution to create a favourable business and investment climate for sustainable economic and social progress by protecting the rights of businessmen and investors.

“Our arbitration and mediation laws, court procedures and dispute resolution mechanism for the settlement of commercial and investment-related disputes are weak, outdated and far behind international standards. On average, a contract takes 1,071 days to settle a commercial dispute in court, and then the case can go to high court and Supreme Court. It is not unusual for a contract case to take many years to be decided,” he said.

Hafiz Ahsaan said that Pakistan had more than two million cases pending in different courts, creating various challenges for the country and hampering the development of a prosperous economy and foreign direct investment (FDI).

He said that due to the absence of an effective, strong and modern ADR system, the economy had been constantly facing huge losses as international and local investors were reluctant to invest in Pakistan.

He said that overseas Pakistanis sent remittances worth more than $32 billion last year but investment by them was less than $1 billion. “ADR is a good legal model, which is being utilised throughout the world to address all types of disputes including the corporate disputes out of the court by using various modes such as arbitration, mediation, conciliation and neutral evaluation,” he added.

The ADR also offers a quick resolution to all kinds of disputes. Various models of ADR are functioning successfully in many countries. This system has evolved over a long period by resolving trade and investment disputes at the earliest.

Hafiz Ahsaan said that leading emerging economies were using open-door policies to attract investment. These countries are also utilising supportive and modern arbitration-specific infrastructure to quickly resolve disputes to facilitate investment inflows for their repaid economic progress.

“Until we develop an efficient ADR system, Pakistan will be constantly facing the vicious circle of current account deficit, currency devaluation and other economic problems,” he said.

The Ministry of Finance in a statement said that Pakistan was trapped in a low-saving and low-investment situation, which constrained its economic potential. It said that there was an intense need for an environment conducive to investment to boost growth momentum.

The ministry said that investors and consumers needed to be convinced of a long-term sustainable and inclusive growth project that inspired confidence in Pakistan’s economic future.

In Pakistan, the ratio between investment and Gross Domestic Product is stuck between 14 to 15 %, placing the country in the 133rd position among 151 countries.

The lack of an efficient ADR system not only affects FDI in the country but also hampers the collection of huge tax revenue owing to the non-resolution of tax-related disputes.

The chairman of the Federal Board of Revenue recently informed the Standing Committee of the National Assembly on Finance that around Rs3.5 trillion of the revenue was stuck up owing to the cumbersome process of four stages of appeals regarding tax-related cases in different courts.

Hafiz Ahsaan said that FBR should devise a strong legal strategy to remove impediments to the early disposal of pending cases. He said that one of the reasons for the deficit in tax collection was thousands of pending cases before the Supreme Court, high courts, tribunals and Commissioner Appeals Inland Revenue and Collector Appeals (Customs) involving billions of rupees.

Such a situation has now become a big challenge not only for the government and FBR but also for the courts. “The situation requires immediate and urgent strategy by coordinating all stakeholders with a positive way forward,” he told WealthPK.

Credit : Independent News Pakistan-WealthPk