Leasing Sector’s Breakthrough Anticipation
08 December, 2011
Leasing Sector’s Breakthrough Anticipation

 

Changes to leasing legislation enacted starting last November are expected to have a breakthrough effect in stagnated Georgian leasing sector; they could ease life of leasing companies as well as small businesses that are viewed as key consumers of leasing globe over. They will also attract more international investors to the Georgian leasing sector.

According to Nana Mikashavidze, Head of TBC Leasing and Head of Association of Georgian Leasing Companies, obscure, non-transparent and discriminating legislation, abounding with contradictions and double interpretations is

the reason why Georgian leasing is still underdeveloped and deprived of investors while 34% of Small and Medium Enterprises (SME) in Europe use leasing.

Georgian leasing was somehow developing till 2007 and total leasing portfolio increased from USD 15 million in 2004 to USD 30 million in 2007, and couple of foreign companies were interested in entering  Georgian market but they changed their mind as soon as they took a look at the legislation regulating Georgian leasing.

Leasing in Georgia has been regulated by civil and tax codes as well a special law aimed to support leasing, approved in 2005, which contradicted with the civil code and undermined rather than supported the sector, Mikashavidze said during a roundtable organized by the USAID-supported Economic Prosperity Initiative (EPI) on November 22, 2011.

Leasing is the key tool of financing in fixed assets but in Georgia leasing resembles a bank loan at the moment and could not compete it as was discriminated by law. Due to unfavorable legislation that tied leasing companies to offer more differentiated service range Georgian entrepreneurs prefer to take bank loans that look cheaper but are less commercial in fact.

“Consumer  pays 18% of Value Added Tax (VAT) itself when takes a bank loan, while leasing companies pay VAT themselves that puts 18% of leasing interest rate equal to 14% of bank loan, plus the product we offer to consumers is completely tailored to consumers as they order definitely what they want and  can return it after the need expires while bank loans are invested completely in the assets that is not tailored to consumers requirement as much as leasing offer and after entrepreneurs need the assets no longer either cannot sell it or sell under non-profitable price, ” Mikashavidze said.

Legislation was the reason Georgian leasing sector unlike banks could not resist the financial crisis of 2008 and its portfolio halved as a result. Leasing companies could not deduct non-paid loans like banks do and had to acknowledge them as profit, non-paid penalties were also ascribed as profit for they were registered on a non-cash basis; all businesses except leasing could enjoy 100% amortization rule [meaning registration investments in fixed assets in expenses completely] that cuts down profit tax, principle of calculation of property tax was very unclear (with serious risks of interpretation) and very complex in terms of administration; a minimum discount interest rate was restricted -leasing companies were actually unable to fully deduct costs on some transactions.

Civil code maximally protected customer leaving leasing companies exposed to risks.  In case of breaching a contract on the part of a client, a leasing company had to return a difference to the client if the value of an asset exceeded the libility. The law imperatively determined the amount which was far from a real amount and was considered as a taxable income.

Although a lessee chooses a provider  the entire responsibility for supply and quality lies with the lessor.

Moreover, to regulate leasing related payments   civil code referred to tax code paragraphs on rent and hire that differ from leasing in essence and complicated tax administration to lease companies.

“Leasing is absolutely different than hire and rent, for example you cannot take three-fold of rent rate beforehand, while leasing is a non-liquid asset and allows its client to repay assets price not on monthly based payment like banks practice but based on season, it offers different payment systems tailored on business, and such legislative contradictions scared investors off and held back leasing development,” Mikashavidze said.

Unclear definition of leasing was also a problem.

To alleviate leasing sector the group incorporating Association of Georgian Leasing Companies and independent legal experts in close cooperation with the National Bank of Georgia, government and EPI shaped out a new legislation project [based on the internationally acknowledged leasing standards of UNIDROIT Model of 2008] that entered into effect starting November 1st . New law is not completely perfect as yet but only civil and tax codes regulate leasing, key contradictions put above are removed and definition of leasing is quite clear: if 70% of business activity is leasing the company may attain a status of leasing company.

Since the law is based on international standards foreign leasing and producer companies are supposed to feel more comfortable and take an interest in Georgia market irrespective its small size that will give an impetus to leasing sector and cut prices down.

“John Deer one of the largest combine/tractors producers in America is not supposed to rush immediately today but this law creates a chance that this John Deer office that already has an office in Turkey will open up an office in Georgia to get a foothold  irrespective its small size because leasing is just developing here, agriculture and medical sector trumpeted as priorities by government are just taking off  starts that requires big investments and can be interesting to foreign companies…bedsides Georgia is a regional and transit center. Providers can cut prices down by 20% to lease companies with bigger resources, while a poor farmer has no discount chance,” Mikashavidze said.

 

Print
Other Stories
The most wanted fruits from Georgia
The fruit exportation has decreased in Georgia. According to Geostat (National Statistics Office of Georgia), this year, up until May Georgia exported 25 939 300 USD worth of fruit – 6 771 300 USD less than in 2018.
Investment Plan for Europe – Additional EUR 800 million for SMEs as EIF and ProCredit double support for innovative companies
The European Investment Fund (EIF) and ProCredit Group are providing an additional EUR 800 million to innovative small and medium-sized companies (SMEs),
Everything of comfortable life in one space – Second part of construction of one of the largest apartment complexes finished in Tbilisi
Apartment in ecologically clean environment, thousands of square meters of green yard, swimming pools, places for various sports activities, treks for walking and running, commercial spaces – all these available in one space is not a fantasy.
Batumi awarded Europe's Leading Emerging Tourism Destination 2019
World Travel Awards Europe Gala Ceremony 2019 took place on the 8th of June in Madeira, Portugal.
Coca Cola to open new factory in Georgia, will hire female drivers
Coca Cola is opening new factory in Georgia in December.
World's best party supply company now on the Georgian market
The largest party supply store in Georgia - MyDay is launching as the official distributor of AMSCAN from 2019.
Live as a marketing tool and an unprecedented live stream launched by Livetag
Sharing information has become smoother and more versatile in today’s technological world. Recently, live streaming, an online streaming media has become especially popular.
Theme and program of Caspian Energy Forum Tbilisi – 2019 changed
“The 8th International Caspian Energy Forum Tbilisi – 2019, scheduled for June 21, will focus on the development of the Azerbaijan-Georgia relations in the field of economy and energy”,
Misunderstanding over Poti deep sea ports
There was misunderstanding around deep sea ports in Georgia – in Poti.
High demand for dollars or the investment decline – Why Georgian Lari depreciates
$1 equals GEL 2,7470 in the official rate set by the National Bank of Georgia (NBG).
PSP Group confirms negotiations regarding purchasing of GEO Hospitals
PSP Group confirms negotiations regarding purchasing of GEO Hospitals.
New life to be given to Dashbashi Canyon
Georgia’s Agency of Protected Areas is planning to give new life to Dashbashi Canyon in Tsalka (southeastern Georgia).
Who is constructing “Khadori 3” Hydropower Plant in Pankisi Gorge?
Clashes broke out in Pankisi Gorge, Georgia’s northeastern region between special forces and residents
Business Positive – Successful radio program from Radio Positive
Starting point of radio program Business Positive is to meet interesting people, communicate with them and deliver information that is interesting for the audience.
A factory of electric vehicles to be built in Kutaisi
Prime Minister Mamuka Bakhtadze stated that a factory of electric vehicles will be built in Kutaisi at the presentation of the Aigroup business group.
Qvevri-shaped hotel complex to be built in Telavi
A Qvevri-shaped hotel complex is scheduled to be built in the village of Shalauri in Telavi, Kakheti (east part of Georgia).
Georgian designers presented at Fashion World Tokyo 2019
The products of 11 Georgian designers are showcased at Fashion World Tokyo 2019,
Silknet raises $200 million in Eurobond issue
27 March 2019 - JSC Silknet (“Silknet”), one of Georgia’s leading telecommunications operators, has successfully priced a debut $200 million 5-year 11% senior unsecured bonds issue (the “Notes”).
Pistachio trees will be planted in Georgia
Dozens of hectares of Pistachio are planned to be planted in Georgia this year.
Toyota Safety Sense and Hybrid Technology
Toyota Caucasus, has presented two new models the 5th generation RAV4 and the 12th generation Corolla at Rustavi International Motorpark, several days ago.
Bidzina Ivanishvili “became number one oppressor of businesses in Georgia” - ICC Georgia chairman Fady Asly
Mr. Ivanishvili promised the business community to protect them from harassment and pressure, unfortunately his words died with the sunset of that day
The best brands of Belarus will be exhibited on a large-scale exposition in Tbilisi
"The Belarusians like to come to Georgia to relax near the sea in Batumi as well as to stay in sunny Kakhetia."
Don’t treat business like a hooker! - Georgian businessman Vasil Soprpmadze addresses politicians
Businessman Vasil Sopromadze, founder of the company "Fresco", addresses politicians
RAV4 No Compromise and Corolla Set to Impress – Two New Cars Presented by Toyota
Toyota Caucasus, the company constantly aspiring to greatness, has presented two new models the 5th generation RAV4 and the 12th generation Corolla.
Mamuka Khazaradze quits TBC bank, does not sell the TBC Bank share
I made a decision to leave TBC bank where I spent 27 years of my life
PHOTO OF THE DAY
GEL Exchange Rate
Convertor
20.07.2019
21.07.2019
USD
1
USD
2.8845
2.8845
EUR
1
EUR
3.2410
3.2410
GBP
1
GBP
3.6177
3.6177
RUB
100
RUB
4.5787
4.5787
Other Stories
Recently Toyota rolled out Global Campaign under this slogan that reflects the Olympic and Paralympic Spirit of Encouragement,
A couple from Switzerland combines Swiss tradition and technology with Georgian products. Their cheese is made in the Georgian mountains and sold in local stores and hotels.
It has been more than five years since the residents of Lilo village, near Tbilisi, cannot open their windows.
63 000 GEL was received by the Georgian Agro Export Group which is just a small part of the European Neighbourhood Programme for Agricultural and Rural development.
Georgian entrepreneur Guka Tavberidze, who runs his own business in the UK and does it quite well, has been invited by BBC
The grand opening of 7-star The Biltmore Hotel Tbilisi took place in Georgia’s capital on July 31.
DUSHETI, Georgia – The Georgian government and the World Bank will allocate USD 5.6 million (12 million GEL) to fund
A new Georgian clothing brand named Person has emerged in Georgian market.
Georgia is in the midst of an economic maelstrom, Euronews reports.
Situation at Georgia’s mineral water market is interesting: over the last year, the volume of export has grown by 56 percent. According to “GeoStat”, over $114 million worth of mineral water was sold
GEL Exchange
USD
1
USD
2.8845
EUR
1
EUR
3.2410
GBP
1
GBP
3.6177
RUB
100
RUB
4.5787
July 2019
Mon Tue Wed Thu Fri Sat Sun
1 2 3 4 5 6 7
8 9 10 11 12 13 14
15 16 17 18 19 20 21
22 23 24 25 26 27 28
29 30 31