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The Bankers Association of Zambia (BAZ) has proposed zero rating the interest component of a Finance Lease, a measure expected to make the service more affordable for acquisition of assets and assist businesses to grow.
Under the Value Added Tax (VAT) proposals for the 2025 national budget, the bankers are contesting the Tax Policy Statutory Instrument (SI) No. 68 of 2014 regarding the Finance Lease.
In the submission made by the BAZ Chief Executive Officer, Leonard Mwanza, the bankers indicated that the proposed measure would increase the uptake (sales) on finance leases by making the service more affordable for acquisition of assets and assist businesses to grow.
Mwanza noted that cheaper financing to acquire business assets should be supported for the overall benefit of the economy.
Additionally, Mwanza stated that the measure would also assist to reverse the distortion created in the VAT mechanism when dealing with leases.
“Finance leasing businesses are compelled to incur the partially adjusted cost of Input VAT when in fact they did not deal in mixed supplies. Apportionment of Input VAT incurred on finance leasing is not well aligned as the service of finance leasing is a complete single taxable supply.
“The Law only warrants Input VAT apportionment or partial claim where a business deals in mixed supplies of both taxable and exempt supplies, which is not the case with lease financing,” he said.
Mwanza highlighted the current challenges posed by the finance lease measure.
He explained that the VAT exemption schedule under Group seven currently provided that the Interest component of a Finance lease was exempt for VAT.
The capital portion of a finance lease on the other hand, he said, was not treated as an exempt supply and was vatable.
“As a result of this, the input VAT claims on the assets purchased for lease is restricted to the portion of the capital value of the lease.
“The unclaimed VAT is a cost suffered by the Financial Service Provider and ultimately factored into the product pricing.
“Therefore, this exempt status increases the cost of borrowing and ultimately limits the acquisition of private and business assets through lease financing,” Mwanza said.
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