This help in group companies to diversify their businesses and utilise the idle funds available in one group company to the new taxpaying venture. Under this concept the reinvestment becomes tax efficient. In Pakistan, Inter-corporate dividends within the group companies were exempt from tax. However, the Finance Act, 2016 removed the words "or section 59B" from the Clause 103A, Part I, Second Schedule of the Income Tax Ordinance, 2001 and withdrew the exemption to inter-corporate dividend to such companies that fall within the scheme of section 59B availing group relief, which is tantamount to double and multiple taxation.
In order to promote group formation and consolidation in Pakistan, it is imperative to exempt inter-corporate dividends. In return it would strengthen the overall corporate structure in Pakistan and will help holding companies to diversify and economically grow. Exemption to eligible groups under section 59B may be reverted to the position prior to the Finance Act, 2016 and tax collection on all inter-corporate dividends other than companies under group relief be considered as adjustable advance tax.