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 Leasing firms demand depreciation allowance, corporate tax cuts

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PostSubject: Leasing firms demand depreciation allowance, corporate tax cuts   Tue Jun 08, 2010 12:18 am

Star Business Report

Leasing and finance companies have asked the government to reintroduce depreciation allowance on lease assets and reduce the corporate income tax rate to help the industry sustain business.

Such allowance means, in all leasing transactions the owner of any asset should be entitled to a depreciation allowance on machinery, plant, vehicle or furniture given to a lessee.

The Bangladesh Leasing and Finance Companies Association placed a four-point demand to the government for considering those in the upcoming budget for the fiscal year 2010-11.

The demands also include tax cut on dividend and tax exemption for zero coupon bonds.

“We want the reintroduction of depreciation allowance for the sake of saving the industry from possible collapse,” Mafizuddin Sarker, president of the association and managing director of LankaBangla Finance, told The Daily Star.

Such firms are also known as non-bank financial institutions.

The main product of these non-banks is lease financing, a very popular one. This is considered a good solution to the requirement of capital machinery, working capital as well as income tax benefit for both the lessee and lessor.

But the government in the budget for 2007-08 withdrew the depreciation allowance on lease assets.

“The withdrawal of the allowance has affected the leasing industry, reduced the import of new machinery, and it has become a heavy tax burden for us on the back of global financial crisis,” said Mafizuddin Sarker.

He said probably the depreciation allowance was withdrawn considering the adoption of International Accounting Standard-17, under which leased assets are shown as receivable, not fixed asset, in the books of accounts of a lessor.

“We understand this is merely an accounting regulation and tax is always calculated based on regulation that may vary with the accounting practices,” the sector's trade body chief further said.

Sarker said the leasing and finance companies in neighbouring India and Pakistan enjoy depreciation allowance.

The association has demanded a tax rate lower than what is being charged in the case of banks.

Currently, the tax rate for banks and non-banks is the same at 42.5 percent.

“It's not practical to keep the banks and non-banks within the same tax bracket since a major portion of bank revenues comes from fee-based earnings,” Sarker said.

He said the cost of funding by non-banks is significantly higher than the banks. Banks are the main source of funds for the non-bank financial institutions.

The association also proposed that the dividend that is receivable from a subsidiary or associate company should be exempted from further tax, provided that the subsidiary company has paid income tax once on its earning.

It said income derived from all subscriptions, irrespective of status of the subscribers, should be entitled to tax exemption to encourage the development of bond market in the country.
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