The estimated Rs. 5,500-crore capital goods leasing sector, growing at 15-20 per cent, may get tapered due to the high Goods and Services Tax (GST), along with a few other issues.

“The GST rate of 28 per cent is high for the leasing industry when compared to the earlier five to 15 per cent tax burden. Higher GST rates lead to requirement of higher working capital at any point of time. This results in increasing the cost of leasing an equipment,” Finance Industry Development Council Director-General Mahesh Thakkar told PTI.

“The government should actively consider not bracketing capital goods in the same GST bracket as luxury goods and sin goods. A lower GST rate will help increase the share of leasing in gross capital formation,” he said.

The share of leasing in gross domestic capital formation in India is less than two per cent, whereas the global average is 10 per cent, he said.

The same could also create hurdles for the foreign companies in India since they believe that leasing is the preferred method of owning assets for operation, an NBFC official said.

Apart from GST rates, there are other issues such as input tax credit, penal interest/ charges for delayed remittance of EMI and sale of repossessed assets, which needs to be corrected.

“Till now there is no response from the government on our representation,” he said.

Both pointed out that the issue will have a severe impact on capital-starved SME players, who will face major hardship due to this.

Construction equipment, wagons, heavy machinery, car leasing, among others, are expected to face hurdles in the new regime.

Leasing in India is just three per cent of global volumes and if taxation issues are not addressed, this will effectively deal a death blow to leasing even before it makes a comeback in India, an equipment company official said.