Taxation of inter-corporate dividends: Dar urged to withdraw proposed amendment

Engro Corporation, opposing proposed amendment in respect of taxation of inter-corporate dividends and surrender of losses under Group Relief, has said that this amendment may necessitate Engro Corporation to rethink its current and future investments.
Through the Finance Bill 2016, the exemption from tax for inter-corporate dividends in a group structure, prescribed under section 59B of the Income Tax Ordinance, 2001, is proposed to be abolished. It has also been proposed to add a restriction in section 59B whereby the surrender of losses under Group Relief will be restricted to the percentage of the holding company in the entity surrendering the losses.
According to Engro Corporation, in a recent letter to Ishaq Dar, Minister of Finance, Revenue & Economic Affairs, President & CEO Engro Corporation Khalid Siraj Subhani has urged the minister to withdraw the proposed amendments in the Finance Bill 2016 in respect of taxation of inter-corporate dividends and surrender of losses under Group Relief.
While extending his appreciation to the Government and other bodies which introduced the concept of Group Taxation in 2007 to foster corporatization and consortium relief, the President & CEO Engro Corporation further stressed the need for keeping the policy in place and withdrawing the proposed amendments.
Through Group Taxation, Engro Corporation has been able to nurture its subsidiaries and offer them in the capital markets of the country, raising the liquidity, market capitalisation and turnover as well as giving the common man the opportunity to invest and benefit from well governed and regulated businesses. The withdrawal of exemption for inter-corporate dividends will result in incidence of double (at times, triple) taxation on inter-corporate dividends. Further, one of the major conditions for surrender of losses under group relief is the maintenance of substantial interest or control in the subsidiary company by the holding company.
It is an internationally accepted principle that with control, an entity assumes the right to govern all the assets and liabilities of another entity in their entirety, including losses. To impose a limitation on the right of the holding company to utilise such losses (based on holding percentage) would not only be economically unjust but would also be against the concept of group taxation under internationally accepted norms.
Engro Corporation has also made, and continues to make significant investments in energy projects under CPEC. The current Engro group structure has been designed to deliver on the Group's strategy on investments on the back of existing legislation. The proposed amendments in the Finance Bill would necessitate Engro Corporation to rethink its current and future investments.
It is pertinent to mention that Pakistan Business Council and Overseas Investors Chamber of Commerce and Industry have also recommended withdrawing these proposals from the Finance Bill, in their respective letters to the Finance Minister.