Depreciation deduction on used machinery import allowed

ISLAMABAD (October 15 2002) : The government has decided to allow the deduction of depreciation on second-hand plant and machinery while calculating income tax on assets.

It would be instrumental in encouraging import of machinery from industrialised countries, undergoing restructuring selling of high labour-cost machinery.

Mostly small and medium enterprises in textile sector would be able to import this machinery. This decision would enhance their cash flows after allowing depreciation because the tax is collected as withholding.

The industrial states are now-a-days carrying out restructuring of their industries and selling off their plants and machinery, which are not viable for them because of higher costs incurred on labour.

This has given a good opportunity to the local industry to buy that machinery and use it here because the cost of local labour is much cheaper than those in industrial states.

The decision came at a meeting held here under the chairmanship of the Finance Minister to amend Sec 23, Clause C, of the Sub-Section 5 of the Income Tax Ordinance-2001.

Sec-23 says: ” Initial Allowance.- (1) A person who places an eligible depreciable asset into service in Pakistan for the first time in a tax year shall be allowed a deduction (hereinafter referred to as an 'initial allowance' computed in accordance with sub-section (2), provided the asset is wholly and exclusively used by the person in deriving income from business chargeable to tax.”

Sub-sec (5): “Eligible depreciation asset means a depreciable asset that is plant or machinery, other than

(c) any plant or machinery that is acquired second hand”.

Now this sub-section would be amended to take into account this decision.

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