The Federal Board of Revenue (FBR) has approached the Securities and Exchange Commission of Pakistan (SECP) for issuance of rules on ''group relief'' to companies for clearly specifying conditions required for corporate sector entitled to such relief.
Sources told Business Recorder on Monday that the FBR has decided to immediately constitute a task force to resolve the pending matters regarding ''group relief'' under section 59AA and 59B of the Income Tax Ordinance 2001. Sources said that the SECP would devise some mechanism/regulations needed for allowing group relief to the 100 percent owned group of companies.
The conditions for allowing such relief would be specified in the procedure to be issued by the SECP. The draft of rules regarding procedure for group taxation under section 59AA of Ordinance 2001 has been provided to the directors-general (DGs), Large Taxpayer Units and Regional Tax Offices (RTOs).
Under the law, the concept of ''group taxation'' was introduced under section 59AA to facilitate the corporate sector. As per relief, 100 percent owned group of companies locally incorporated under the Companies Ordinance, 1984 will be taxed as a single fiscal unit, provided an irrevocable option is exercised to be taxed as a group.
Similarly, losses incurred by group company will be offset against income of other group companies and consolidated group account as required under the Companies Ordinance, 1984 will form the basis of computation of income and tax payable by the group.
Previously, income derived from inter-corporate dividend within the group companies, entitled to group taxation under section 59AA of the Ordinance, 2001, was exempt from tax, where holding companies and subsidiary companies of 100 percent owned group were allowed to opt for group taxation.
The Task Force on Review of Law Relating to Holding Companies had recommended similar relief for group companies eligible for group relief under section 59B, whereby relief is admissible to group companies having 55 percent to 75 percent holding subsidiary relationship. Therefore, relief on account of inter-corporate dividend had been allowed to group companies entitled to group relief.
In case of section 59B, a subsidiary company may surrender its assessed losses (excluding capital loss or brought forward losses) for the tax year in favour of its holding company or between the subsidiaries of the holding company or between another subsidiary of the holding company.
Under section 59B of Ordinance 2001, all the companies in the group shall comply with such corporate governance requirements as may be specified by the SECP from time to time and are designated as companies entitled to avail group relief.