Under the present investment allowance incentive, the investment allowance granted to a company on the capital expenditure incurred for an approved project can only be set-off against the chargeable income from that project. Consequently, companies which carry on projects or activities where the income is already granted exemption from tax are not granted the investment allowance incentive. This is because there is no benefit from setting-off such allowances against exempt income.

In line with the national thrust to encourage water conservation, companies in water-intensive industries have been asked to reduce their water consumption through the installation of efficient water recycling plants. The high capital However, companies in water-intensive industries may already have been awarded tax exemption or other incentives. I have therefore decided to allow the investment allowances which are granted to such companies for water-recycling plants to be set-off against chargeable income taxed at the normal rate, provided they satisfy certain water conservation levels. This will apply to investment allowance granted for qualifying water-recycling plants incurred on or after 1 January 1996.