Maravi

VAT reduction will increase operations cost

VAT reduction will increase operations cost - ZamLease
By Kabanda Chulu
Tuesday February 20, 2007 [02:00]

ZAMBIA Leasing Association (ZamLease) has observed that the reduction in value added tax (VAT) input claims in the 2007 budget will increase operating costs that would be passed on to consumers. ZamLease president Max Honde said there is need to clarify and make further improvements on issues relating to operating leases as outlined in this year’s budget. “The way the budget has been worded excludes operating leases. There are two types of lease finance, that is finance leases and operating leases and we would have expected this exemption to apply on both,” Honde said. “Maybe there was either a mistake in wording or the government may have meant to say lease finance and not finance lease because the new budget is meant to exclude operating leases, which are becoming a very popular way of financing assets.”

He observed that leasing practitioners were curious as to why the exempt position was only on the interest portion that excludes capital because in a commercial loan, exemption is applied on both the capital and interest payments. “The best way to introduce consistency in the VAT treatment between a loan and finance lease is to exempt, if not zero rate, VAT on lease capital as well,” Honde said. “However, this will disadvantage the leasing companies because there will be increased operation costs due to reduced VAT input claims and these costs will definitely be passed on to consumers.” Honde, who is also the chief executive officer of Sapitwa Finance, said VAT was only supposed to apply to the value addition component of a service. He said the regional leasing seminar that would be hosted in Lusaka from Wednesday to Friday this week, should help to bring further understanding of the various aspects of leasing.

Last week, finance minister Ng’andu Magande announced proposals to exempt interest paid on finance leases for VAT purposes. Honde said the government’s move was commendable because it will make leasing more affordable than it has been currently since interest on a finance lease attracts VAT while that on loan does not. He observed that it was imperative for the government to facilitate the development of capital and asset finance businesses which leasing would surely help. “All this investment that is going on in the private sector can only be sustained if the businesses and even individuals are empowered with ownership of the capital assets that they need in their operations because businesses such as manufacturing and agriculture can only be developed if there is requisite equipment,” said Honde.

Labels: MAGANDE, VAT

posted by MrK @ 1:47 PM