The Rationale for Capital Allowances
 
Because accounting depreciation is disallowable, tax systems use a structured framework of capital allowances to let businesses recover the cost of long-term capital assets. Capital allowances provide a standardized, predictable way to write off capital investments against taxable income, encouraging corporate capital investment.
Classifying Asset Pools and Depreciation Scales
Tax regulations group capital assets into distinct pools, applying specific write-down percentages on a reducing balance or straight-line basis:
  • Class I (Heavy Machinery & Vehicles): Heavy earth-moving equipment, tractors, and heavy commercial vehicles (e.g., 37.5% reducing balance).
  • Class II (Computers & Office Equipment): Laptops, servers, data processing software, and digital communication devices (e.g., 30% reducing balance).
  • Class III (Light Vehicles & Aircraft): Saloon cars, delivery vans, small trucks, and aircraft (e.g., 25% reducing balance).
  • Class IV (Furniture & Fixtures): Office desks, display counters, partitions, and general fittings (e.g., 12.5% reducing balance).

Industrial and Commercial Building Allowances
Buildings do not qualify for standard wear-and-tear pools. Instead, they receive investment allowances calculated on a straight-line basis over their useful life:
[ Industrial Buildings ] ----> Factories and processing plants (e.g., 10% per year straight-line)
[ Commercial Buildings ] ----> Offices and retail shopping complexes (e.g., 2.5% per year straight-line)
[ Hotel Buildings ] ---------> Approved tourism accommodation infrastructure (e.g.,
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