A high goods and services tax imposed on the leasing industry is expected to have an enormous impact on the market. The current rate of 28% is very high when compared to 5-15% tax burden previously. The higher GST burden has led to the requirement of higher working capital as compared previously. This has eventually resulted in an increase in the cost of leasing equipment.
The capital goods sector is estimated to be approximately ₹ 5,500 crores, which is growing at a rate of 15 to 20% annually. The expected growth might be stalled as a consequence of the high amount of GST that has been imposed.
The director-general of finance industry development council Mahesh Thakkar commented that the government should not club the capital goods with the luxury and the sin goods. Currently, the share of leasing in the Indian market is very quiet close to 2% as compared to the global average of 10%. The increase in the GST could also create a negative impact on the foreign companies set up in India as they prefer to have to lease as a method of owning assets for their operations.
Apart from the rise in GST, issues such as tax credit, penalty interest for delayed payment of EMIs also are causing issues and need to be corrected. These factors are expected to have a high impact on the capital starved SME companies in the market who would face a lot of issues due to this.
Apart from the SMEs, construction sector, automobile sector, heavy machinery sectors are expected to face a lot of hurdles shortly.