Azerbaijan's leasing sector development requires new model

Business Materials 27 October 2009 13:21 (UTC +04:00)

Azerbaijan, Baku, Oct. 27 / Trend , I.Khalilova/

Azerbaijan's leasing sector needs a civil regulation, and in this regard, a draft law on "Leasing", which will be proposed to the Government of the country, is under development, said Elchin Ahmadov, the chairman of the Association of Leasing Companies of Azerbaijan (ALCA).

"Earlier, it was proposed to amend the Civil Code, but today there is need for a separate regulatory document governing the leasing activity, as it's happening now in the banking and insurance sector in the country," said Ahmadov.

He said the association plans to soon come up with concrete proposals for improving the state of the leasing sector in the country's legislative initiative to the government.

"Every day more and more the need is felt for a separate law, which is more widely may encompass aspects of leasing activity in the country," said Ahmadov. "In parallel with the law, we will come out with other legislative initiatives in the form of proposals to the tax code."

In practice, leasing companies face challenges that must be reflected in the tax code, because they cause a number of questions and need to be addressed. Today, he said, questions on the interpretation of points of the Tax Code relating to leasing activities remain open.

"Despite the lack of resolution of these issues, in general, there is a positive trend on the leasing market of the country, and the sector is developing normally even in the face of the global crisis," said Ahmadov.

He acknowledged the low capitalization of the sector, but believes that today the leasing companies and their shareholders can raise capital if necessary. At present, there are not any requirements for capitalization of leasing companies, unlike banks and insurance companies.

To improve the state of companies and increase demand for their products, one of the main proposals of the association is to create a model to compensate for the value added tax. Creating such a model would make lease and loan products equal in status. At the moment, there is no possibility to substitute VAT acquired through leasing equipment from the buyer, so as a financial instrument leases for 18 percent more expensive than a loan.

The changes proposed by the association also include the use of accelerated amortization on equipment obtained through leasing, the introduction of the ban on banks to hold leasing operations, regulation of leasing companies in the state structure (the Central Bank, Ministry of Finance), the introduction of licensed activities of market participants and the establishment of special reserve funds to pay for possible damage from the rental lease. Further, the association proposed to introduce minimum capital requirements when creating a new leasing company.

According to representatives of the association, such actions will not only develop the leasing sector of the country, but also small and medium entrepreneurship in the non-oil sector, as well as will accelerate the process of creating new jobs in the country's regions, improve the quality of imports into the country and enable to replace obsolete equipment with new one.

Association of Leasing Companies of Azerbaijan was established on Oct. 27 in 2004 by the companies Ataleasing, Unileasing, Muganleasing. Today, the Association brings together 10 companies and two of them have an observer status.

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