Tax relief under industrial package: Maximum production capacity mandatory for sick units: FBR

ISLAMABAD: The Federal Board of Revenue (FBR) has imposed a major condition on the sick industrial units to attain maximum production capacity to avail conditional tax concessions under the industrial package.

According to an explanatory circular (13 of 2022) issued by the FBR on the industrial package, the revival of sick industrial units requires attaining maximum production capacity that was obtained before such company went sick. Such revival will be certified by the Engineering Development Board (EDB) and the acquired company is required to file said certificate along with return of income for tax year 2026, the FBR stated.

The FBR has explained important amendments introduced in the Income Tax Ordinance, 2001, via the Income Tax (Amendment) Ordinance, 2022.

In order to initiate revival of sick industrial units, a new section 59C has been inserted in the Income Tax Ordinance under which an acquiring company is allowed to adjust loss for the latest tax year and brought forward assessed business losses, excluding capital loss, of acquired company flick industrial unit) by way of acquisition of its majority share capital.

The acquiring company can adjust said losses for a period of three tax years up to tax year 2026.

Failure to revive sick industrial unit by tax year 2026 shall entail acquiring company to reverse the adjustment of loses in the preceding three tax years and offer income for tax which was set-off due to adjustment of loses of the acquiring company in tax year 2027.

The acquiring company is entitled to adjust above said losses in proportion to share capital acquired subject to the conditions referred in sub-section (2) of the section 59C of the Ordinance. Any leftover loss of acquired company by the end of tax year 2026 will not be available to the acquiring company for further set-off of losses in tax year 2027 against its own income; however, the acquired company can carry forward its losses in accordance with section 57 of the Ordinance. The benefit under this section shall not be available to any scheme of amalgamation or merger.

Industrial package: Investment opportunity is conditional concession, not amnesty scheme: FBR

The definition of a sick industrial unit, whose losses are available for adjustment under this scheme, has been provided in this section, the FBR added.

The FBR has specified that the “sick industrial unit” means a company being an industrial undertaking, which (i) has accumulated losses, for a continuous period of three years prior to July 1, 2022, equal to or exceeding its entire capital and reserves at the time of acquisition, as the ease may be; or has defaulted towards repayment of outstanding debts owing to banking companies or non-banking financial institutions for a consecutive period of three years immediately before acquisition, as the case may be, or has been declared as such by the federal government in a notification published in the official Gazette.

Copyright Business Recorder, 2022