What Environmental Protection Facilities are eligible for the proposed tax deduction?
The eligible facilities will be set out in a list of specified Environmental Protection Facilities. The list will be included as a schedule to the Inland Revenue Ordinance. The list mainly includes machinery or plant required under schemes or ordinances administered by the Environmental Protection Department and some renewable energy installations.
Is the proposed tax deduction only provided to newly acquired specified Environmental Protection Facilities?
The proposed tax deduction is not limited to new purchases or installations. Specified Environmental Protection Facilities already in use by a business are also eligible for the proposed deduction. The reducing value or residue of expenditure of the facilities under the depreciation allowance regime will be treated as specified capital expenditure for which deduction will be provided accordingly.
Owners of existing environmental protection facilities that are of the types listed in the Schedule but which do not meet the specification requirements yet, may register such facilities according to the requirements. The facilities will qualify for the proposed deduction after registration.
The above information should only be regarded as final when the relevant ordinance is enacted.
When will the proposed list of specified Environmental Protection Facilities be announced?
The proposed list of specified Environmental Protection Facilities will be announced when the Revenue Bill 2008 is published in the gazette. However, the list should only be regarded as final when the relevant ordinance is enacted.
How the proposed tax deduction is allowed for the eligible Environmental Protection Facilities?
For eligible facilities which are machinery or plant, 100% deduction of cost will be allowed in the year of purchase. This is the same as the deduction presently allowed for "prescribed fixed asset", which are mainly manufacturing and computer equipments.
For eligible facilities which are installations forming part of a building or structure, the cost will be allowed for deduction over a 5-year period starting from the year of purchase, i.e. 20% in each of the years.
Will environmental protection installations forming part of a residential building qualify for the proposed deduction?
The term "industrial or commercial building" covers all types of building, including a residential building. Therefore, deductions can be claimed for environmental protection installations forming part of a residential building under the profits tax regime. For example, a company which lets out residential units in the normal course of its business will be able to claim the deduction in respect of the relevant environmental protection installations.
What is the implementation plan for the proposed tax deduction?
The proposed deduction will apply to 2008/09 and subsequent years of assessment. After enactment of the required legislative amendments, taxpayers may claim the deduction under profits tax in respect of specified Environmental Protection Facilities which are in use or newly acquired.
Taxpayers may apply in writing for holding over payment of the whole or part of the provisional profits tax payable for the year of assessment 2008/09 if the assessable profits for that year, after allowing the deduction, are or are likely to be less than 90% of the assessable profits for the year of assessment 2007/08.