Problems for development of leasing market in azerbaijan
If in 2004 the leasing sector of Azerbaijan was under process of establishment, over the recent years the leasing market in the Country became stably and actively developed. Currently seven leasing companies function in Azerbaijan. As of 31 December 2007, the aggregate portfolio of the leasing companies made up AZN 140mln, an increase of 110% from the same period of 2006, when the figure totaled AZN 59mln.
Mostly the leasing operations are being held in the construction sector. The rise in the prices for real estate in Azerbaijan led to gigantic growth of demand for the production capacity of the construction companies. However, due to the specifics of the new business, they do not possess sufficient amount of capital. Therefore, the leasing is not an only way to stay in the market. Now already half of the construction equipment is being acquired throughout leasing mechanism. It is explained through continuously growing demand of the Azerbaijani construction companies for the modern equipment and high cost of them.
The prospects of leasing in this and other spheres may be more. However, the local companies have finance problems which prevent its further development. The authorized capitals of Azerbaijani leasing companies do not exceed $1mln in total and they need to take credits. However, the banking credits in Azerbaijan are not cheap (18-26%) and accordingly the interest rates of the leasing companies will also be high (at least 19-27%).
This problem can be settled as a result of establishing a Leasing Fund, which has already been included in the program of the Association of Leasing Companies of Azerbaijan. Currently the Association holds talks with the IFC, EBRD and ADB with regards to the establishment of the Leasing Fund. The Fund will possess finances being attracted and will be able to finance local leasing companies. Establishing the fund will lead to increase of finances and corporate clients and it will develop the whole market. Over the recent years, Azerbaijan studies the experience of Russia where nearly 700 leasing companies function. However, it is not very much for such a big country, but the tendency of development and effectiveness of the activities of several companies testify positive practice of their functioning.
The leasing of commercial facilities in Azerbaijan possesses large potential not only in the capital, but also in the regions. Currently the positive dynamic of living conditions of population has a large impact on increase of interest towards the leasing of the commercial facilities. It needs to develop leasing of the industrial facilities.
The reliable legal regulation is important for then development of the leasing sector. In Azerbaijan the leasing operations are being regulated throughout Civil Code and Tax Code. It would be expedient to devise Law on Leasing like other many countries because the contemporary legislation does not fully meet the demands of developing of the leasing activities in Azerbaijan. However, yet the Government of Azerbaijan does not consider it to devise a special law on leasing activity.
In addition, the leasing is very sensible to the tax regime. The key problem of the leasing is the VAT and mechanism of speed amortization, i.e. applying VAT to the funds acquired for leasing. This tax is also applied to the individual leasing services. As a result, the leaser needs to pay VAT twice: from fee for leasing the facility and from fee being paid by the client. It means that one deal incurs VAT twice and becomes 18% more expensive. In addition, double amortization for the technical means of this category has been annulled, and there is a gap which makes it impossible to use sub-leasing. Currently the Association of Leasing Companies of Azerbaijan is devising proposals on improvement of the legislation acts with regards to leasing. Moreover, the Association presented suggestions to the Government of Azerbaijan regarding implementation of leasing programs which will give an opportunity to forecast the profits from the development of the leasing market. The Association wants to convince the Government of he issue that the leasing financing is the best mechanism to raise economic intensity of the Country.
Irrespective of the above-mentioned problems, currently the leasing in Azerbaijan is a rapidly developing business. In addition, already there is an understanding that the leasing a tool expanding and creating production, ensuring competition worldwide, new jobs, collection of taxes, etc. If the above-mentioned problems are successfully removed in Azerbaijan, the leasing market of Azerbaijan may achieve significant progress.