What's next after Industrial Building Allowance phases out?

As Singapore gears itself towards improving land productivity, the industrial building allowance (IBA), which was first introduced in the 1940s to encourage industrialisation, will be phased out.

Currently, businesses are allowed to claim industrial building allowance (IBA) on costs incurred on the construction or purchase of building that is used for qualifying industrial purposes, for example, manufacturing. With the phasing out of IBA, this means that no IBA will be granted for building expenditures incurred after 22 February 2010 except in certain specified scenarios.

To support enhanced land productivity, the Budget 2010 introduced a new scheme called the Land Intensification Allowance (LIA), which targets industrial users whose buildings or structure belongs to one of these nine industry sectors: pharmaceuticals, petrochemicals, petroleum, specialties, other chemicals, semiconductor-wafer fabrication, aerospace, marine and offshore engineering, and solar cell manufacturing. The qualifying business will be granted an initial allowance of 25% and an annual allowance of 5% on the qualifying capital expenditure. Unless your business falls within one of these nine industry sectors, no deduction will be given for future expenditure on buildings.

Absent IBA, there are still avenues to get deduction for certain expenditure on buildings. Businesses would want to scrutinise your expenditure on buildings and maximise such claims.

• Can it qualify as “plant” for purposes of a capital allowance claim? Examples are air conditioning, building automation and control system, data communication wirings, fire alarm system and lifts.

• Can it qualify as “renovation and refurbishment” costs for purposes of R&R expense deduction? Examples are general electrical installation and lighting, hot/cold water system, fixed partitions, flooring and wall covering, sanitary fittings, doors, windows and gates.

• Are there any building modifications for benefit of disabled employees?
It pays for business to take a good look at their building expenditure plan again. At the very least, get a detailed breakdown of the costs from contractors to safeguard your claim on building expenditures.

The writer is Ang Lea Lea, Tax Services Partner, Ernst & Young Solutions LLP. To read more about our analysis of the Budget, please visit www.ey.com/sg/budget