(Yicai) July 18 -- China will allow businesses that invest in specialized gear upgrades in three fields to offset a part of that expenditure against income tax, as a specific measure to support the latest round of large-scale equipment upgrading.

Companies can deduct 10 percent of what they spend on the digital and intelligent transformation of specialized equipment in the areas of energy saving, water conservation, environmental protection, and safety production from this year through 2027, according to a policy document released today by the Ministry of Finance and the State Taxation Administration.

An action plan set out by the State Council in March said China aims to boost investment in upgrading equipment across sectors such as industry and agriculture by at least a quarter by 2027, compared with 2023. Big equipment upgrades form part of the country's broader strategy to enhance industrial efficiency, competitiveness, and sustainability.

The cabinet also said favorable tax policies targeting specialized equipment in the energy and water saving, environment protection, and secure production sectors should be strengthened.

The new tax break marks another significant step for China to support the digitization and intelligentization of specialized equipment, said Tian Zhiwei, deputy dean at the Institute of Public Policy and Governance of Shanghai University of Finance and Economics.

High-tech firms as well as micro and small businesses with lower corporate income taxes will be the ones to benefit the most from the new policy, he added.

Under the policy, the deductible cannot exceed half the amount spent to buy the new equipment. Moreover, companies can apply for the deduction only if the equipment was included in the catalog for income tax breaks for specialized devices previously released by the ministry and the tax authority.

The deduction is valid for the same year as a company invests in upgrading its equipment. But if the tax payable is a year is below the sum that can be deducted, then a firm can carry over the deduction to future years for up to five years.

If companies sell or lease the upgraded devices within five years, they will no longer meet the policy requirements and will be forced to pay back the deducted amount.

These limitations are there to prevent companies from abusing the system, Tian pointed out. For example, setting the maximum investment limit to half of the equipment's initial cost prevents companies from fabricating and exaggerating their investments in equipment.

Editor: Dou Shicong, Futura Costaglione