ISLAMABAD: The hotel industry in Pakistan has received a significant tax relief, as the government has allowed businesses in this sector to carry forward losses for a period of eight years starting from the tax year commencing on July 1, 2020. This amendment, introduced through the Finance Act, 2020, was recently approved by the National Assembly.
The change has been enacted by adding a new sub-section, 2B, to Section 57 of the Income Tax Ordinance, 2001. The new provision reads as follows:
Sub-section 2B: Where a loss, referred to in sub-section (2), relating to a tax year commencing on or after the first day of July 2020 is sustained by a resident company engaged in the hotel business in Pakistan, the said loss shall be carried forward for a period of eight years.
This amendment extends the previous carry forward period for business losses from six years to eight years specifically for the hotel sector. The sub-section of Section 57 before the amendment stated:
(2) If a loss sustained by a person for a tax year under the head “Income from Business” is not wholly set off under sub-section (1), then the amount of the loss not set off shall be carried forward to the following tax year and applied as specified in sub-section (1) in that year, and so on, but no loss can be carried forward to more than six tax years immediately succeeding the tax year for which the loss was first computed.
This legislative change highlights the government’s efforts to support the hotel industry, which has faced significant challenges due to the COVID-19 pandemic. By extending the loss carry forward period, the government aims to provide these businesses with a longer time frame to offset their losses against future profits, thereby easing their financial burden and promoting recovery and growth in the sector.
Furthermore, this amendment aligns the hotel sector’s loss carry forward period with other special provisions under the Income Tax Ordinance. For example, sub-section 2A of Section 57, which deals with losses sustained by banking companies wholly owned by the Federal Government, allows these losses to be carried forward for ten years. This specific provision reads:
(2A) Where a loss, referred to in sub-section (2), relating to any assessment year commencing on or after 1st day of July, 1995, and ending on the 30th day of June 2001, is sustained by a banking company wholly owned by the Federal Government as on first day of June, 2002, which is approved by the State Bank of Pakistan for the purpose of this sub-section, the said loss shall be carried forward for a period of ten years.
The hotel industry is expected to benefit significantly from this amendment, allowing for greater financial stability and fostering a conducive environment for long-term investment and development.
