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ISLAMABAD: The government has allowed carry forward of business losses of sick industrial units under the tax amnesty scheme for the industrial undertakings. Under the Income Tax (Amendment) Ordinance, 2022 promulgated by the president, where a company, hereinafter, referred to as acquiring company, acquires under a scheme of acquisition majority share capital of another company being a sick industrial unit (acquired company), the acquiring company shall be entitled to adjust loss for the latest tax year and brought forward assessed business losses excluding capital loss of the acquired company subject to provisions of section 57 for a period of three years.

The facility of the carry forward will be available on fulfilment of the said conditions. (I) There is continued ownership for five years starting from June 30, 2023 and there is no change in share capital of the acquiring company. (II) the assets of the acquired company shall not be sold up to June 30, 2026 and (III) the acquired company continues the same business till June 30, 2026.

Where the losses surrendered by the acquired company are not adjusted against income of the acquiring company in the said three tax years, the acquired company shall carry forward the unadjusted losses.

The loss of the acquired company shall be adjusted against income under the head “income from business” of the acquiring company as per specified formula.

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For the removal of doubt, this section shall not apply to any scheme of amalgamation or merger.

For the purposes of this section, a sick industrial unit referred to as acquired company, shall be deemed to be revived, if the said company attains maximum production capacity that was obtained before the industrial unit went sick.

Provided that the acquired company produces a certificate to the effect that it stands revived, duly issued by Engineering Development Board, along with the return of income filed for tax year 2026.

If the acquiring company fails to revive the acquired company by tax year 2026, the acquiring company shall, in tax year 2027 offer the amount of profit on which taxes have not been paid due to set off of losses surrendered by the acquired company.

The “sick industrial unit” means a company being an industrial undertaking, which 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 case may be or 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, it added.

Under the Ordinance, the eligible person for the scheme means all persons, except holders of public office, their spouses and dependent children; a public company as defined in clause (47) of section 2 of this Ordinance; a person who has filed a declaration under the Voluntary Declaration of Domestic Assets Act, 2018, the Foreign Assets (Declaration and Repatriation) Act, 2018, or the Assets Declaration Act, 2019; a person that has been declared a bank loan defaulter by a bank or a financial institution within the last three years; or a director of a company who has been declared a bank loan defaulter by a bank or a financial institution within the last three years.

The provisions of the scheme shall not apply to any proceeds of crime, corruption, money laundering and terror financing; any amount which is subject of any departmental or court proceedings; the investments made sectors i.e. arms and ammunitions; explosives; sugar; cigarettes; aerated beverages; flour mills; vegetable ghee and cooking oil manufacturing excluding extraction units.

Copyright Business Recorder, 2022

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