Non-banking financial companies: proposal to allow to set off accrued losses retrospectively

The Federal Board of Revenue (FBR) is examining a proposal to allow non-banking finance companies, modarabas or insurance companies to set off accumulated losses retrospectively from July 1 2007.
Sources told Business Recorder on Tuesday that the board has introduced an amendment in the Income Tax Ordinance 2001 through Finance Act 2008, which has resulted in an anomaly in the law.
Previously, banking companies were allowed the facility to set off accumulated losses from July 1 2007. Later, this facility was extended to the non-banking finance companies, modarabas or insurance companies from July 1 2008. As there is a gap of one year, Modarabas/insurance companies have now demanded the facility retrospectively from July 1 2007, sources added.
Meanwhile, the FBR has issued instructions to the Director Generals in the field formations to workout revenue implications in case the facility is being extended retrospectively to the said sector.
The FBR directive said that under sub-section (2A) of section 57A of Ordinance, non-banking finance companies, modaraba or insurance companies have been allowed to set off accumulated losses with effect from July 1 2008. There is a gap of one year and taxpayers have represented to allow this facility retrospectively (or in continuity) therefore the Director Generals were asked to compute the loss of revenue on case to case basis, if it is to be allowed for this sector within effect from July 1, 2007, directive added.
According to sub-section 2A of the section 57A of the Ordinance 2001,"In case of amalgamation of banking company or Non-banking Finance Company, modarabas or insurance company, the accumulated loss under the head "Income from Business" (not being speculation business losses) of an amalgamating company or companies shall be set off or carried forward against the business profits and gains of the amalgamated company and vice versa, up to a period of six tax years immediately succeeding the tax year in which the loss was first computed in the case of amalgamated company or amalgamating company or companies: provided that the provisions of this sub-section shall in the case of banking companies be applicable from July 1, 2007."
When contacted tax experts said that it would be difficult to extend such facility retrospectively to the NBFCs etc under the Income Tax Ordinance 2001, as a Bill has to be passed by the Parliament for making such changes in the law. The FBR is empowered to amend Second Schedule of the Ordinance 2001 for providing income tax exemptions. However, substantial changes have to be passed through the national assembly, which is a time consuming process.
Previously, assessed loss (excluding capital loss) for the "tax year", other than brought forward and capital loss, can be set off in the case of amalgamation of two companies for a period up to six years, succeeding the year of amalgamation. However, un-absorbed depreciation is allowable as per the provisions of subsection (4) and (5) of section 57.
To encourage amalgamation of banking companies, NBFCs, modarabas and insurance companies the facility of carry forward of "accumulated loss" under the head "income from business" (not being speculation business losses) has been allowed for a period of six years succeeding the tax year in which the loss was first computed in the case of amalgamated company or amalgamating company or companies. It will provide the facility of amalgamation of one or more such companies and modarabas as was available from the tax year, 2002 through 2006, experts added.