Mergers and acquisitions:
Guidelines on tax incentives
The Central Bank with the concurrence of the Ministry of Finance and
Planning issued guidelines on the ascertainment of cost of acquisition
or merger as a qualifying payment and on the claimability of any
unabsorbed input credit in terms of the Inland Revenue Act and Value
Added Tax.
These guidelines are applicable to licensed banks, licensed finance
companies and specialised leasing companies and are effective from April
1, 2014.
These guidelines specify the items of costs in relation to the
acquisition of a business as a going concern or the acquisition of
shares or the merger with another bank, finance or leasing company.
Accordingly, the cost of acquisition will include purchase
consideration, professional fees, documentation fees, expenditure
incurred on IT systems, human resource related costs, advertising costs
and infusion of capital at the time of acquisition or merger.
The costs will be permitted to be deducted from the year of
assessment of the acquisition or merger subject to a maximum limit of
1/3 of the assessable income.
However, if the assessable income of the acquiring financial
institution is less than Rs. 300 million, the qualifying payment can be
deducted up to the level of assessable income and any amount remaining
could be carried forward and set off against the future assessable
income.
The transfer of shares due to the acquisition or merger will be
exempted from Stamp Duty by an Order published in the Gazette.
The guidelines will further promote the financial sector
consolidation process and ensure the expeditious completion of on-going
mergers and acquisitions. |