Clause 103C of part 1 of 2nd schedule to ITO 2001: PBC urges finance ministry not to alter

KARACHI: The Pakistan Business Council (PBC) on Monday urged the federal finance ministry that clause 103C of part 1 of the second schedule to the Income Tax Ordinance (ITO) 2001 be left unaltered in the larger interest of the country.

In a letter to Minister for Finance and Revenue, Dr Abdul Hafeez Shaikh, the CE PBC Ahsan A Malik has said PBC views with concern media reports that the government is considering the withdrawal of clause 103C of part 1 of the second schedule to the income tax ordinance 2001. The exemption currently provided under clause 103C to taxing of intercorporate dividends has helped in the consolidation and scaling up of the Pakistani Businesses.

Any change now in the tax laws is likely to negatively impact investment decisions especially at a time that the government is looking for growth.

The letter said in today’s highly competitive global economy one of the major economic determinants of success is the size of an entity. The size allows companies to compete on scale product sophistication and innovations by allowing them to attract financial and human capital.

In Pakistan there is also the need for family-owned business to infuse fresh capital from a wider set of investors, thus helping the development and democratisation of capital market.

To promote the scaling up of Pakistani entities to enable them to compete both in the global as well as the domestic markets the finance act 2007 introduced the concept of holding companies and changes were made in the tax law by introducing section 59AA which relates to group taxation and section 58B which relates to group relief.

Additionally, clause 103A was inserted in part 1 of the second schedule to exempt from withholding tax, intercorporate dividends paid within group companies.

In the fourteen years since the passage of the group company laws in 2007, there has been a significant shift towards scaling up through the process of consolidating group entities under a holding company structure. Pakistani companies operating under group structures have in a recent past started participating in international joint ventures and making stand alone global investments. It has also enabled to diversify into new sector, leveraging the parent company standing and reputation. Banks and lenders are as a consequence able to take a differentiated risk in exposure depending on sector that such groups venture into.

“We should therefore request that clause 103C of part 1 of the second schedule to the ITO 2001 be left unaltered in the large interest of the country.” it said.

Copyright Business Recorder, 2021