Profits Tax -
Purchase of computer hardware and software
Under Section 16G, the purchase cost of computer hardware and
software for producing assessable profits is tax deductible.
Computer hardware includes mainframe computer system and
standalone personal computers. A computer system forming an
integral part of a plant or machinery does not qualify the
Section 16G deduction as a prescribed computer stuff --- it
should be treated as part of the plant or machinery. Then it may
qualify a deduction as a
fixed asset for manufacturing also under Section 16G or else, it
as a usual plant or machinery.
meaning of computer software is well understood and does not
usually give rise to disputes.
Only the hardware and software used for the production of
assessable profits qualify the Section 16G deduction. Where they
are only partly used for the profits-earning purpose, the
expenditure will be apportioned between the purposes.
Computer hardware and software purchased on hire purchase or
held on lease do not qualify a Section 16G deduction.
Nevertheless, the hire-purchase asset may attract depreciation
allowances as a usual plant or machinery and the monthly rent
payments of the leased asset may qualify a deduction, providing
the assets are used in the production of assessable profits.
Where the computer stuff for which the deduction
has been allowed is sold, the sales proceeds is deemed to be