Raymond Yeung Tax Consultant former Assessor of Inland Revenue Department 前稅局評稅主任楊輝洪

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Profits Tax - Purchase of plant or machinery for manufacturing 

Under Section 16G, the purchase cost of a prescribed plant or machinery for a manufacturing process is wholly deductible in the year of purchase. A prescribed plant or machinery does not include one purchased on hire purchase or held on lease. 

A prescribed plant or machinery is one specified in the First Part of the Table annexed to Inland Revenue Rule 2 which is reproduced as follows: 

Item No

Nature of the assets




Type and blocks (if not dealt with on renewals basis)


Bleaching and finishing machinery and plant


Electronics manufacturing machinery and plant


Plastic manufacturing machinery and plant including moulds


Silk manufacturing machinery and plant


Sulphuric and nitric acid plant


Textile and clothing manufacturing machinery and plant


Weaving, spinning, knitting and sewing machinery


Any other machinery or plant, not specified in items 1 to 34

To qualify the deduction, the prescribed plant and machinery must be used for a manufacturing process. The term “manufacturing process” is not defined in the Ordinance. In practice, the IRD adopts the dictionary meaning in the Shorter Oxford English Dictionary: “manufacturing” means “engaged or concerned in manufacture”; whereas “manufacture” means “to work up (material) into forms suitable for   use; or to produce by labour (now especially on a large scale) …”; whereas “process” means “the fact of going on or being carried on; progress, course… a particular method of operation in any manufacture…”.

The IRD does not accept “construction work” as a manufacturing process.

Where a prescribed plant and machinery for which the deduction has been allowed is sold, the sales proceeds is deemed to be taxable income. 

The deduction is restricted for the prescribed plant and machinery used for producing assessable profits. Where it is only partly used for such purpose, apportionment of the expenditure between the purposes can be made.

A plant or machinery failing the Section 16G deduction may attract full deduction under Section 16B as part of scientific research. Even failing a full deduction, it can still attract depreciation allowances as an usual "plant and machinery".

Assets used outside HK are regarded as being held on lease in accordance with Section 2. As such, they are classified as excluded assets under Section 16G(6) and therefore they cannot get any deduction under S16G. Besides, as the assets are used outside Hong Kong, for similar reasons and by Section 39E, they cannot qualify any depreciation allowance.


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