FBR urged to clarify income tax relief to group companies

KARACHI: Federal Board of Revenue (FBR) has been urged to clarify group relief under income tax laws regarding a holding company can purchase losses of its subsidiary.

Pakistan Business Council (PBC) in its proposals for budget 2020/2021 submitted to the FBR, stated that as per Section 59B of the Income Tax Ordinance, 2001, a holding company can purchase the loss of its subsidiary provided there is continued ownership of five years as mentioned in sub-section 2 of Section 59B.

The PBC said that this subsection 2 of Section 59B has already been misinterpreted by the tax department in various companies that purchase of loss by the holding company is allowed in the sixth year i.e. after the end of continued ownership of five years.

“Practically speaking, subsidiary companies mostly incur losses in the initial years of establishment due to huge amount of depreciation / initial allowance on new setup (plant & machinery, etc.) and mostly no losses incurred after a period of 5 years (i.e. in the sixth year).”

Taking the approach used by the tax authorities, practically speaking, none of the holding company would be able to claim losses of its subsidiary.

Therefore, the PBC suggested following amendment to Income Tax Ordinance:

At the end of sub-section 2 of Section 59B, an explanation be added as below:

“Explanation: For the removal of doubt, it is clarified that the holding company can adjust the losses of its subsidiary during the aforesaid period of 5 years.”

The PBC said that the propose amendment would promote consolidation of businesses.

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