BUSINESS FOCUS - LEASING

New VAT will impact the price of leasing

IT WAS mainly acts on income tax and value added tax this year that altered the conditions for individuals and businessmen financing their investments through leasing. Leasing companies hope that amendments adopted in 2003 will not have a negative impact on their market.
Unifying the previous 14 and 20 percent rates of value added tax (VAT) at 19 percent should have a major influence on leasing prices.
While a 1 percent drop in VAT on the lease of machinery, technologies, trucks, and commercial vehicles should be reflected in price cuts, the hike in the VAT on the leasing of cars from 14 at 19 percent should bring a price increase.

IT WAS mainly acts on income tax and value added tax this year that altered the conditions for individuals and businessmen financing their investments through leasing. Leasing companies hope that amendments adopted in 2003 will not have a negative impact on their market.

Unifying the previous 14 and 20 percent rates of value added tax (VAT) at 19 percent should have a major influence on leasing prices.

While a 1 percent drop in VAT on the lease of machinery, technologies, trucks, and commercial vehicles should be reflected in price cuts, the hike in the VAT on the leasing of cars from 14 at 19 percent should bring a price increase.

However, leasing companies do not expect price hikes in the leasing of cars to discourage potential customers from choosing this form of financing. They suppose the VAT increases will have almost no impact on the level of actual leasing instalments.

"The flat VAT will mean cheaper services for leasing commercial vehicles and trucks as well as machinery and office equipment by 1 percent. The VAT was increased only on cars, which will effect leasing instalments only minimally," Lucia Rosová from the marketing department of ČSOB Leasing told The Slovak Spectator.

From 2004, entrepreneurs are not entitled to deduct the VAT on the purchase price of a leased item from their leasing instalments.

On the other hand, the new legislation concerning income tax abolished limits on leasing expenses that can be classified as tax-deductible. "This change is very positive because a customer can now include all the leasing instalments in their [tax-deductible] costs," said Rosová.

Radoslav Horečný, marketing manager of GE Capital Leasing, said: "We do not believe that the changes in VAT and the whole legislation will significantly effect the development of leasing."

According to current legislation, a leasing company acts as the legal owner of the leased item. The leasee is the economic owner of the item and must register and write it off as his property in his accounts.

While Rosová thinks this measure should not impact the development of the leasing market, Ján Kovalčík from Trend Analyses predicts that changes in write-offs could discourage some entrepreneurs from choosing to lease.

"Tax incentives enabling the write-off of leased assets faster [than other assets] were abolished. Many businessmen had been encouraged to use leasing thanks to such tax incentives," said Kovalčík.

Due to the fact that adopted changes take effect only from the beginning of this year, it is too early to judge the effect of the measures, most companies said. In general, they expect positive results from the new tax legislation on the whole economy, including the leasing market.

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