This blog is written by Mr. Hasnain Mir Ijaz, Associate Taxation Advisory Services. Please read this blog and provide your valued comments.

(i) Group taxation: [U/S 59AA]

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 Companies Ordinance, 1984, computation of income and tax payable shall be made for tax purposes.

The companies in the group shall give irrevocable option for taxation as one fiscal unit. The group taxation shall be restricted to companies locally incorporated under the Companies Ordinance, 1984. The relief under group taxation would not be available to losses prior to the formation of the group.

The option of group taxation shall be available to those group companies which comply with such corporate governance requirements 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.

Group taxation may be regulated through rules as may be made by the Board.


(ii) Pre-commencement expenditure: [U/S 25(5) read with Part III of the Third Schedule]

Pre-commencement expenditure means any expenditure incurred before the commencement of a business wholly and exclusively to derive income chargeable to tax, including the cost of feasibility studies, construction of prototypes, and trial production activities, but shall not include any expenditure which is incurred in acquiring land, or which is depreciated or amortised under

section 22 or 24.

A person shall be allowed a deduction for any pre-commencement expenditure in accordance with the following:

  • Pre-commencement expenditure shall be amortized on a straight-line basis at the rate of 20%.
  • The total deductions allowed in the current tax year and all previous tax years in respect of an amount of pre-commencement expenditure shall not exceed the amount of the expenditure.
  • No deduction shall be allowed in the manner as mentioned above, where a deduction has been allowed under another section of the Income Tax Ordinance, 2001 for the entire amount of the pre-commencement expenditure in the tax year in which it is incurred.

Hasnain Mir Ijaz