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Manufacturing plant exempted from property tax

Companies which have plant and machinery used for manufacturing, processing or other industrial purposes may be able to save tax dollars following a High Court decision, tax lawyer Tan Kay Kheng says.

As a result of the ruling, they may not have to pay property tax based on an annual value enhanced by the value of the plant and machinery.

Companies which have pipelines that extend beyond their premises also do not have to pay property tax for them, says Mr Tan, who heads WongPartnership’s tax practice.

Last week, the High Court said that district cooling service company First DCS does not have to pay property tax for the machinery in its building. The machinery includes generators, transformers, a cooling tower system and a 4km underground pipeline system that extends beyond the boundaries of its premises.

The court found that the legislative aim of a section in the Property Tax Act, Section 2(2), is to encourage investment in plant and machinery for manufacturing, processing and other industrial purposes.

It also found that the machinery which produces chilled water and sends it to customers and back through the pipeline system comes under one of the exclusions provided by S2(2) of the Act. The section sets out the instances when machinery can be excluded from the annual value of the premises it is on.

First DCS produces chilled water for the air-conditioning needs of other buildings in Changi Business Park.

In any case, even if the machinery is not excluded from property tax under the Act, the court found that First DCS does not have to pay tax on its pipelines through which water is sent to customers and back.

This is because even though the pipelines are part of First DCS’s machinery, they extend beyond its premises and are used by its customers. In fact, the 4km pipeline system also improve its customers’ property in providing them district cooling services.

Mr Tan, who represented First DCS with colleague Leung Yew Kwong, says that the decision by the High Court saves the company about $200,000 in taxes per year.

He says that the decision is not limited to companies in the same industry and would certainly benefit companies in any industry where their plant and machinery is really for manufacturing, processing and industrial purposes.

Source : Business Times - 30 May 2007