(Source : Information Services Department)
LCQ19: Tax concessions provided for environmental protection facilities
Following is a question by the Hon Kenneth Leung and a written reply by the Secretary for the Environment, Mr Wong Kam-sing, in the Legislative Council today (March 2):
Since 2008, pursuant to section 16I of the Inland Revenue Ordinance (Cap. 112), an application may be made for deducting any specified capital expenditure incurred in relation to any of the environmental protection (EP) installations specified in Part 2 of Schedule 17 to Cap. 112 over a period of five years in ascertaining taxable profits, whereas in respect of any specified capital expenditure incurred in relation to any EP machinery or plant specified in Part 1 of Schedule 17, an application may be made for deducting such expenditure in ascertaining taxable profits for the year of assessment concerned. Regarding the tax concessions provided for EP facilities (i.e. EP installations, EP machinery and plant), will the Government inform this Council:
(1) of the details of the cases in which applications were made for deductions in relation to EP installations each year since 2008, including (i) the numbers of private companies and organisations applying for deductions, (ii) total installed capacity (if applicable), (iii) installed capacity connected to power grids (if applicable), (iv) total deductions, (v) minimum deduction for a single item, and (vi) maximum deduction for a single item, and set out such information by the EP installations specified in Part 2 of Schedule 17 to Cap. 112 in tables of the same format as set in Annex I;
(2) whether the tax concessions provided for EP installations are applicable only to profits tax assessments; if they are, whether the authorities (i) have studied the feasibility of shortening the five-year time span for capital expenditure deductions, e.g. full deduction in one year or over a period of two years, (ii) have provided any tax concessions or subsidisation measures to encourage non-commercial buildings and non-commercial organisations to put in place EP installations, and (iii) have studied expanding the scope of application of the tax concessions for EP installations to cover other types of taxes (including but not limited to property tax, rates and government rent); if they have, of the direction and contents of their study, and set out the information by type of EP installations and type of taxes; if not, the reasons for that;
(3) given that under the existing Scheme of Control Agreements, the two power companies may enjoy higher permitted rates of return by investing in renewable energy power generation facilities, whether the two power companies may, at the same time, enjoy tax concessions for their renewable energy power generation facilities; if they may, whether it has reviewed if this situation constitutes double concessions; how the authorities prevent the two power companies from shifting the capital expenditure concerned to electricity users while enjoying such concessions; and
(4) given that Part 1 of Schedule 17 to Cap. 112 only stipulates the way in which EP machinery or plant is defined, whether the authorities will make public a list of EP machinery or plant in respect of which applications for deductions may be made?
In order to encourage the business community to adopt environment-friendly machinery and equipment, the 2008/09 Budget proposed to provide a 100 per cent profits tax deduction for capital expenditure on such equipment in the first year of purchase. For environment-friendly installations mainly ancillary to buildings, the depreciation period has been shortened from the usual 25 years to five years as well. Our reply to each part of the question is set out below:
(1) The Inland Revenue Department does not have the required statistics in respect of the different types of environmental protection installation. The table set in Annex II lists out the number of corporations claiming deductions for environmental protection installation since the year of assessment 2008/09.
(2) Under section 16I of the Inland Revenue Ordinance (IRO) (Cap. 112), any specified capital expenditure incurred by a taxpayer in relation to any environmental protection installation can be deducted. However, the prerequisite for claiming this tax deduction is that the expenditure must be related to the taxpayer's trade, profession or business, and incurred in the production of its chargeable profits. In other words, this tax measure is only applicable to profits tax.
We consider the arrangement for allowing the specified capital expenditure on environmental protection installation to be deducted over five years reasonable. This is consistent with the five-year deduction mechanism for the expenditure on building refurbishment under section 16F of the IRO.
In addition to the above tax measures, the Government launched in 2009 two three-year energy efficiency project funding schemes under the Environment and Conservation Fund to provide funding support for owners of residential, commercial and industrial buildings as well as non-government organisations to carry out alteration, addition or improvement works to upgrade the energy efficiency performance of their building service installations. The Schemes covered building service installations for public areas including lighting, electrical, air-conditioning, lift and escalator installations. The two funding schemes were closed in 2012. About 6,400 buildings, or more than one seventh of the total building stock in Hong Kong, and 500 non-government organisations have benefitted from the two funding schemes.
(3) To encourage the two power companies to develop renewable energy (RE), the Government provides incentives under the existing Scheme of Control Agreements (SCAs) in terms of a higher permitted rate of return for their RE investments.
To encourage the business community to adopt environmental protection facilities, the tax incentives introduced by the Government since 2008 were also applicable to the two power companies. Under the current SCAs, any tax incentive that reduces the final tax expenses will be reflected in the electricity tariff, and will ultimately benefit the consumers. The permitted return received by the two power companies is not affected by the tax incentives. Therefore, the tax incentives will not give the two power companies additional profit or return.
(4) Construction machines with the label of Quality Powered Mechanical Equipment (QPME) issued by the Environmental Protection Department are included in the environmental protection machinery designated under the IRO (Cap. 112). The QPME covers 12 types of commonly used construction machines, namely: (1) tracked bulldozer; (2) wheeled bulldozer; (3) tracked loader; (4) wheeled loader; (5) excavator; (6) generator; (7) mobile crane; (8) vibratory roller; (9) road roller; (10) asphalt paver; (11) vibratory compactor; and (12) power rammer. Full list of machines with QPME label has been uploaded onto in the following website for public information: www.epd.gov.hk/cgi-bin/npg/qpme/search_gen.pl.
Examples of "air pollution control machinery or plant" are electrostatic precipitators, flue gas desulphurisation plant, dust collection installation, gas scrubbers, car wheel washing facilities at construction sites, grease trap filters, hydrovents and vapour recovery system; "waste treatment machinery or plant" are pH control plant, heavy metal removal plant, cyanide removal plant, oil separation plant, bioreactor and organic solvent recovery plant; while examples of "wastewater treatment machinery or plant" include domestic wastewater treatment plant and industrial wastewater treatment plant.
In general, the use of all such machinery or plant is to comply with the terms and conditions of the licence/authorisation issued under the relevant pollution control Ordinances. Therefore, the use of such machinery or plant would mostly be covered in the information for applicants for licence/approval, as well as the terms and conditions of the licence/authorisation issued subsequently under the Ordinances or specified in the legislation (e.g. vapour recovery system in petrol filling stations). It is not possible to produce an exhaustive list in view of the wide range machinery and plant, and the emergence of new products in the market in tandem with technological advancement.
Ends/Wednesday, March 2, 2016
Issued at HKT 13:06