New law urged by struggling leasing firms
For many business people, leasing companies can mean the difference between a successful business and life in the doldrums. This is particularly true of small and medium-sized enterprises (SMEs), which rely on leasing for much of their life blood. From plant-hire contractors to the bagel peddler outside offices, leasing is often an essential part of an economy's development.
According to many analysts, leasing is the driving force behind investments in Western Europe, especially for SMEs. But it's more difficult for smaller operations to find funds in Poland. "Leasing is a tool to support SMEs," said Dariusz Baran, president of CLiF, one of the major leasing companies in Poland. "But leasing finances only 8% of investments in Poland."
The problem is money. With high interest rates burning a hole in corporate pockets and banks wary of providing loans to leasing companies, many leasing firms have had difficulty developing their companies.
High interest rates have inflated operating costs for many leasing firms, said Andrzej Jakubowski, a board member at FCE Leasing, a Ford-affiliated leasing company. He said many leasing companies rely on loans to finance their operations.
These high-priced loans have forced prices up for customers and the result is falling client numbers. "Interest rate increases since late 1999 have hit the number of bank loans being used and leasing contracts signed," Jakubowski said.
Trade has also dropped because of opaque tax laws surrounding leasing companies. "One of the main reasons why customers don't want to lease is the lack of legal clarity of laws and the multitude of interpretations by tax offices," Jakubowski said.
There is still no clear law on leasing companies in Poland and nowhere is this confusion felt more than when dealing with tax issues. Companies are currently allowed a generous 22% tax break on VAT on leased products. It's something the Finance Ministry had wanted to scale back.
Although last year saw huge strides toward regulating leasing, many tax regulations still exist in a financial gray area, Baran said. "There can't be room for somebody in a tax office to interpret the regulations one way or another," Baran added. "It leads to unnecessary confrontation." One of the major problems is when leasing is deducted from the costs of a company, analysts said.
A law on leasing is currently being debated by politicians. This would contain new regulations allowing the leasing of passenger cars, which is still unprofitable, said Wojciech Drzewiecki, head of Samar, an automotive research company.
"Making the conditions for leasing cars similar to the conditions for leasing other fixed assets could cause a significant increase in the development of the Polish leasing market," said Adam S. Martowski, president of BRE Leasing, a member of Commerzbank Group. There's a huge demand from companies for car leasing, Martowski said, adding that it could boost the market by 25%.
Ford's Jakubowski predicts a company like FCE Leasing, which leases only Ford-produced vehicles, could have as much as a 100% increase if leasing laws change. "Introducing leasing for passenger cars would be a turning point," he said.
Drzewiecki said a leasing law should be introduced soon. "Leasing laws have already been prepared," he said. They may be implemented this year it depends on the goodwill of politicians, he added.
