Spiralling Lease Cost Sets Off Alarm
He said that leasing is subject to cost additives which do not apply to traditional means of financing.
He said, "Of these various cost additives, the most serious is sales tax, the levy of which increases the cost of lease financing by as much as 10 per cent to 15 per cent." He said since the incremental tax burden of a lease is ultimately passed on to the lessee, the burden of taxation is reflected on the high cost of the industry.
He said a majority of lessees in the country comprise small and medium enterprises who, unable to approach banks for finance, resort to lease financing. Thus, any increase in the cost of lease finance would directly affect these enterprises, he added.
The association, in the last few years, has made several representations to the concerned authorities, pleading for withdrawal of sales tax on leasing.
Kanoria said that sales tax laws should recognise a lessor as a financial intermediary, and unless a lease or hire purchase is being used as a garb for a real sale, such a transaction should not be brought to tax at all.
The interest tax on hire purchase transactions and value-added tax on lease and hire purchase transactions in some states have created a lot of uncertainty in the industry.
Nearly Rs 15,000-crore worth of equipment is taken on lease in India, which forms around four per cent of the fixed assets acquired by the industrial enterprises in the country.
However, the present market penetration of four per cent compares quite unfavourably with the global average of 21 per cent. This indicates the tremendous potential that lease and hire purchase financing has in India.
HPLA is one of the oldest and the largest representative bodies of leasing and hire purchase companies in eastern India and is affiliated to the Bengal Chamber of Commerce and Industry.
The association, at present, has about 220 members under it's fold, spread over the eastern region.
The meet was attended by the West Bengal industries minister, Bidyut Ganguly, who said that India is far behind other developing countries and would have to learn from them.