The Securities and Exchange Commission of Pakistan (SECP) has proposed amendment in the Income Tax Ordinance 2001 to encourage amalgamation of non-banking financial companies (NBFCs) from next fiscal year 2009-10.
Sources told Business Recorder on Wednesday that the NBFCs and Modarabas are generally engaged in numerous business activities and it can be construed by tax authorities that the business is not the same in the narrow sense. It is accordingly proposed to clarify the matter through proposed proviso in the Income Tax Ordinance 2001.
Besides, the proposed amendment will be helpful in encouraging amalgamation of NBFCs which are in financial distress. The SECP has proposed deletion of condition that the amalgamated company continue the business of amalgamating company for a minimum period of five years.
For this purpose, amendment in section 57A(2) of Income Tax Ordinance 2001 is required. Loss absorption in case of amalgamation should not have restrictions such as continuing the business of amalgamating company. This is to encourage the amalgamations in the given scenario.
According to the proposed amendment in section 57A(2) of Income Tax Ordinance 2001, "provided that losses referred to in sub-section (1) and unabsorbed depreciation referred to in sub section (2) shall be allowed set off subject to the condition that the amalgamated company continues the business of amalgamating company for a minimum period of five years from the date of amalgamation. "Provided further that in case of NBFCs the condition of continuing the business shall be deemed to have been met as long as the amalgamation is between NBFCs or a Modaraba and NBFC".
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