FBR explains eligibility, election and governance requirements for companies seeking group taxation treatment under Section 59AA.

ISLAMABAD: The Federal Board of Revenue (FBR) has outlined the group taxation rules for Tax Year 2027, explaining how qualifying holding and subsidiary companies can elect to be treated as a single fiscal unit under the Income Tax Ordinance, 2001.

The FBR has issued the Income Tax Ordinance, 2001, updated up to June 30, 2026, containing the provisions applicable to Tax Year 2027.

Section 59AA: Group taxation

Under Section 59AA, holding companies and subsidiary companies forming part of a 100% owned group may opt to be taxed as a single fiscal unit.

Companies choosing group taxation are required to prepare consolidated group accounts in accordance with the Companies Act, 2017. Their income and tax payable are then computed for tax purposes in accordance with the provisions governing group taxation.

Companies opting to be taxed as one fiscal unit must make an irrevocable election under Section 59AA.

Eligibility for group taxation

The group taxation regime is restricted to companies that are locally incorporated under the Companies Act, 2017.

The tax relief available under the group taxation framework does not extend to losses incurred before the formation of the group.

The election is also subject to corporate governance requirements and group designation rules or regulations prescribed by the Securities and Exchange Commission of Pakistan (SECP) from time to time.

Only companies that have been designated as eligible for group taxation can benefit from the regime.

FBR rules governing group taxation

Section 59AA further provides that the group taxation regime may be regulated through rules made by the FBR.

The provision establishes a framework under which qualifying companies within a wholly owned group can be treated as a single fiscal unit for tax purposes, subject to the prescribed eligibility, governance and regulatory requirements.

The rules also clarify that companies seeking group taxation treatment must meet the relevant conditions before making the election and that losses incurred before the formation of the group cannot be used to obtain relief under the regime.

What the rules mean for companies

The group taxation provisions provide an option for eligible wholly owned corporate groups to determine their tax position on a consolidated basis.

However, companies considering the election must ensure that they meet the ownership, incorporation, governance and SECP designation requirements. The election is also irrevocable, making compliance with the applicable conditions particularly important before opting for the regime.

For Tax Year 2027, qualifying companies should therefore assess their eligibility and the potential tax implications before making an election under Section 59AA of the Income Tax Ordinance, 2001.