Income Tax Ordinance, 2001 — Section 59A: Limitations on set off and carry forward of losses

1[59A. Limitations on set off and carry forward of losses. 2[ ] Chapter III – Tax on Taxable Income full effect cannot be given to the loss relating to deductions under section 22, 23, 24 or 25 owing to there being no profits or gains chargeable for that year or such profits or gains as mentioned in sub-section (4) of section 57, being less than the said loss, the loss or part of the loss, as the case may be, shall be set off against fifty percent of the person’s income chargeable under the head “income from business” for the following year or if there is no “income from business” for that year, be set off against fifty percent of the person’s income chargeable under the head ”income from business” for the next following year and soon for succeeding years.]

(6)Where, under sub-section (5), deduction is also to be carried forward, effect shall first be given to the provisions of section 56 and sub-section (2) of section 58.

(7)Notwithstanding anything contained in this Ordinance, no loss which has not been assessed or determined in pursuance of an order made under section 59, 59A, 62, 63 or 65 of the repealed Ordinance or an order made or treated as made under section 120, 121 or 122 shall be carried forward and set off under section 57, sub-section (2)of section 58 or section 59.] 1 [59AA. Group taxation.— (1) Holding companies and subsidiary companies of 100% owned group may opt to be taxed as one fiscal unit. In such cases, besides consolidated group accounts as required under the 2[Companies Act, 2017 (XIX of 2017)], computation of income and tax payable shall be made for tax purposes.

(2)The companies in the group shall give irrevocable option for taxation under this section as one fiscal unit.

(3)The group taxation shall be restricted to companies locally incorporated under the 3[Companies Act, 2017 (XIX of 2017)].

(4)The relief under group taxation would not be available to losses prior to the formation of the group. “(5) Where in computing the taxable income for any tax year, full effect cannot be given to a deduction mentioned in section 22, 23, 24 or 25 owing to there being no profits or gains chargeable for that year or such profits or gains being less than the deduction, then, subject to sub-section (12) of section 22, and sub-section (6), the deduction or part of the deduction to which effect has not been given, as the case may be, shall be added to the amount of such deduction for the following year and be treated to be part of that deduction, or if there is no such deduction for that year, be treated to be the deduction for that year and so on for succeeding years.” 1 Inserted by the Finance Act, 2007. 2 The expression “Companies Ordinance, 1984 (XLVII of 1984)” substituted by the Finance Act, 2021. 3 The expression “Companies Ordinance, 1984 (XLVII of 1984)” substituted by the Finance Act, 2021. 113 Chapter III – Tax on Taxable Income

(5)The option of group taxation shall be available to those group companies which comply with such corporate governance requirements 1[and group designation rules or regulations] as may be specified by the Securities and Exchange Commission of Pakistan from time to time and are designated as companies entitled to avail group taxation.

(6)Group taxation may be regulated through rules as may be made by the2[Board]. 3 [59B. Group relief.— (1) Subject to sub-section (2), any company, being a subsidiary 4[or] a holding company, may surrender its assessed loss 5[as computed in sub-section (1A)] (excluding capital loss) for the tax year (other than brought forward losses and capital losses), in favour of its holding company or its subsidiary or between another subsidiary of the holding company: Provided that where one of the company in the group is a public company listed on a registered stock exchange in Pakistan, the holding company shall directly hold fifty-five per cent or more of the share capital of the subsidiary company. Where none of the companies in the group is a listed company, the holding company shall hold directly seventy-five per cent or more of the share capital of the subsidiary company. 1 Inserted by the Finance Act, 2013. 2 The words “Central Board of Revenue” substituted by the word “Board” by the Finance Act. 2014. 3 Section 59B substituted by the Finance Act, 2007. The substituted section 59B read as follows: “59B. Group Relief.- (1) Subject to sub-section (2), any company, being a subsidiary of a public company listed on a registered stock exchange in Pakistan, owning and managing an industrial undertaking or an undertaking engaged in providing services, may surrender its assessed loss for the tax year other than brought forward losses, in favour of its holding company provided such holding company owns or acquires seventy-five per cent or more of the share capital of the subsidiary company.

(2)The loss surrendered by the subsidiary company may be claimed by the holding company for set off against its income under the head “income from Business” in the tax year and the following two tax years subject to the following conditions, namely:

(a)there is continued ownership of share capital of the subsidiary company to the extent of seventy-five per cent or more for five years; and

(b)the subsidiary company continues the same business during the said period of five years.

(3)The subsidiary company shall not be allowed to surrender its assessed losses for set off against income of the holding company for more than three tax years.

(4)Where the losses surrendered by a subsidiary company are not adjusted against income of the holding company in the said three tax years, the subsidiary company shall carry forward the unadjusted losses in accordance with the provision of section 57.

(5)If there has been any disposal of shares by the holding company during the aforesaid period of five years to bring the ownership of the holding company to less than seventy-five per cent, the holding company shall, in the year of disposal, offer the amount of profit on which taxes have not been paid due to set off of losses surrendered by the subsidiary company.” 4 The word “of” substituted by the Finance Act, 2021. 5 Inserted by the Finance Act, 2016. 114 Chapter III – Tax on Taxable Income 1[(1A) The loss to be surrendered under sub-section (1) shall be allowed as per following formula, namely: (A/100) x B where A is the percentage share capital held by the holding company of its subsidiary company; and B is the assessed loss of the subsidiary company.]

(2)The loss surrendered by the subsidiary company may be claimed by the holding company or a subsidiary company for set off against its income under the head “Income from Business” in the tax year and the following two tax years subject to the following conditions, namely:

(a)there is continued ownership for five years, of share capital of the subsidiary company to the extent of fifty-five per cent in the case of a listed company, or seventy-five per cent or more, in the case of other companies;

(b)a company within the group engaged in the business of trading shall not be entitled to avail group relief; 2[(ba) a company or companies within the group whose income from business is chargeable to tax under any provisions of this Ordinance other than Division II of Part I of the First Schedule to the Ordinance shall not be entitled to avail group relief;]

(c)holding company, being a private limited company with seventy five per cent of ownership of share capital gets itself listed within three years from the year in which loss is claimed;

(d)the group companies are locally incorporated companies under the 3[Companies Act, 2017 (XIX of 2017)];

(e)the loss surrendered and loss claimed under this section shall have approval of the Board of Directors of the respective companies;

(f)the subsidiary company continues the same business during the said period of three years; 1 Inserted by the Finance Act, 2016. 2 Clause (ba) inserted by the Finance Act, 2025. 3 The expression “Companies Ordinance, 1984 (XLVII of 1984)” substituted by the Finance Act, 2021. 115 Chapter III – Tax on Taxable Income

(g)all the companies in the group shall comply with such corporate governance requirements 1[and group designation rules or regulations] as may be specified by the Securities and Exchange Commission of Pakistan from time to time, and are designated as companies entitled to avail group relief; and

(h)any other condition as may be prescribed.

(3)The subsidiary company shall not be allowed to surrender its assessed losses for set off against income of the holding company for more than three tax years.

(4)Where the losses surrendered by a subsidiary company are not adjusted against income of the holding company in the said three tax years, the subsidiary company shall carry forward the unadjusted losses in accordance with section 57.

(5)If there has been any disposal of shares by the holding company during the aforesaid period of five years to bring the ownership of the holding company to less than fifty-five per cent or seventy-five per cent, as the case may be, the holding company shall, in the year of disposal, offer the amount of profit on which taxes have not been paid due to set off of losses surrendered by the subsidiary company.

(6)Loss claiming company shall, with the approval of the Board of Directors, transfer cash to the loss surrendering company equal to the amount of tax payable on the profits to be set off against the acquired loss at the applicable tax rate. The transfer of cash would not be taken as a taxable event in the case of either of the two companies.

(7)The transfer of shares between companies and the share holders, in one direction, would not be taken as a taxable event provided the transfer is to acquire share capital for formation of the group and approval of the Security and Exchange Commission of Pakistan or State Bank of Pakistan, as the case may be, has been obtained in this effect. Sale and purchase from third party would be taken as taxable event.] 2[ ] 1 Inserted by the Finance Act, 2013. 2 Section 59C shall be omitted and shall be deemed to have been omitted with effect from 2 nd March, 2022 through Finance Act, 2022. The omitted section read as follows: