Taxation management

SET-OFF & CARRY

FORWARD OF LOSSES
AYESHA MANAN
AR: 523735

INTRODUCTION
Set off and carry forward of
losses

Set Off of Losses

Income tax law allows that generally, such
a loss can be adjusted against any other
source of the same head or against any
other head of income in the same year. This
adjustment in the same year is known as
set off of losses.

Set Off of Losses of Companies

Operating Hotels
If a company is registered in Pakistan or
Azad Jammu and Kashmir (AJ&K), and it is
operating hotels at both the places, and it
sustains a loss from business at one place, the
loss can be adjusted against companys
income at the other place.

Set Off of Speculation Loss

Where a person sustains a loss in any tax year
in respect of any speculation business, he can
set off such loss only against profits of another
speculation business carried on by him. It
means that loss from speculation business
cannot be adjusted against another head.

Set Off of Capital Loss

Capital loss also like speculation
loss cannot be set off against
income or profits under any other
head.

CARRY FORWARD OF LOSSES

If loss not adjusted in the same year is to be
adjusted against the income of future years.
The procedure is known as carry forward of
losses.

Carry Forward of Loss from

Business
If a business loss cannot be fully set off in
the same year, it can be carried forward to
the next year and adjusted against the
persons income chargeable under the
hear income from business and against
any other head of income

Carry Forward of Loss of Some

Banking Companies
Through Finance Ordinance, 2002, the
loss sustained by certain banking
companies can be carried forward for a
period of ten years

Carry Forward of Loss of

Speculations Business
If such a loss cannot be fully set off due to
inadequacy or absence of profits from
speculation business, it can be carried
forward to the next tax year to be adjusted
only against speculative gains of next tax
year.

Carry Forward of Capital

Loss
Where a taxpayer sustains a capital loss and it
cannot be set off against the capital gains of
the same year, the portion not so set off shall
be carried forward to the following tax year
and set off against the capital gains of that
year.

Practical study
ABM Data Systems (Private) Limited

ABM Data Systems

ABM Data Systems was incorporated as a
private limited company in January 1983 in
Pakistan
Its registered office is situated at Karachi
In 1985, ABM established a regional office at
Islamabad & Lahore
ABM is a leading firm in computer industry of
Pakistan with over 150 employees and a
customer base of over 5000 sites, which
includes many well-reputed organizations.

Objectives and Functions

Sale of mini, micro, and laptop compute
Sale of computer accessories like upgrading products,
networking and communication products.
Sale of computer-related consumable items like
ribbons, tape cassettes etc.
On call repair and maintenance services.
Networking services (Local Area and Wide Area
Network design, installation, and maintenance).
Training in standard software packages and systems.

Set Off and Carry Forward of Losses

of Subsidiary ABM Data system
subsidiary company may surrender its assessed losses
(excluding capital loss or brought forward losses) for the tax
year in favors of its holding company or between the
subsidiaries of the holding company or between another
subsidiary of the holding company
losses surrendered by the subsidiary company can be
claimed by the holding company or a subsidiary for set
off against its income from business in the tax years in
which losses have been surrendered and the following
two tax years

Set Off and Carry Forward of Losses

of Subsidiary ABM Data system
A private limited company, being a holding company,
should get listed within 3 years from the year in which loss is
claimed
loss surrendered and claimed should have approval from the
Board of Directors of the respective companies;
subsidiary company should continue the same business
during the period of 3 years;

SWOT Analysis
Strengths:
Established name in the field of Information Technology since
1983
Registered with the Pakistan software export board (PSEB) to
which helps ABM to avail tax benefits
Good reputation among the corporate customers

Weaknesses:
High cost structures
Lack of key distribution channels
Lack of after sale services departments

Opportunities:
Removal of International barrier trade
Arrival of new technologies
Loosening of tax regulations by the Govt

Threats:
Emergence of substitute products
Shifts in customers tastes away from the firms
product
Frequent changing of tax rates
High rate of taxes on import

Thank you