Oct. 22--AMMAN -- The International Finance Corporation (IFC) urged the government to open a dialogue between players in the finance leasing market to boost fair competition in the sector.

"A level-playing field between leasing and other forms of credit need to exist as both are similar instruments for financing the purchase of assets," said an IFC study on the challenges and opportunities for the leasing market in Jordan.

According to the draft income tax law currently debated at the Lower House of Parliament, leasing is not considered a financing tool and lessors are treated as trading companies rather than financing firms.

The IFC also points to another deficiency in the proposed tax legislation as it subjects leasing to unequal treatment relative to bank loans although both are financial transactions.

The controversial draft income tax law suggests that banks have their income tax rates reduced to 30 per cent from the current 35 per cent, while income tax on other financial companies, such as insurance and leasing, be cut to 25 per cent from the current 35 per cent.

In the study released on Tuesday by the IFC, a member of the World Bank Group, leasing transactions are described as alternatives to bank loans and they should be treated in a similar manner for tax purposes.

Raed Al Ali, the director of the leasing department at the Bank of Jordan, agreed and urged the government to reduce the income tax imposed on leasing transactions provided by banks from 35 per cent to 25 per cent.

"The government should provide incentives to the leasing sector and bank transactions are part of the market," he indicated, noting that despite high tax rates, the performance of the leasing unit at the bank during the first 10 months of this year was better than the same period of 2008.

However, Yousef Arafat, the general manager of Nuqul Leasing, said if leases are treated in the same manner as loans in the income tax policies, the leasing firms will be at a disadvantage because banks enjoy access to credit risk information available through the Central Bank of Jordan.

Arafat claimed that the leasing sector has not posted growth so far this year due to the slowdown in the real estate market.

The IFC report noted that tax treatment of leasing remains to be clarified urgently, saying that all parties will need to work together to ensure that the new code fully addresses the needs of the leasing sector, both for income and sales tax.

"Eliminating discriminatory tax treatment, will enable Jordanian lessors to benefit from the opportunities the new leasing law provides, thus helping the leasing sector develop, stimulate economic growth, create jobs and increase financing options for Jordanian firms," the study stated.

It mentioned that with the spillover effects of the global financial crisis starting to emerge, the outlook for the Jordanian leasing industry is uncertain and will be influenced by factors over which leasing companies will have little or no direct control.

"These factors include lack of liquidity, erosion of asset values, and changing market conditions," the IFC indicated, stressing that leasing companies will need to be proactive in understanding the risks they face and take steps to ensure sustainability of operations and profitability.

The annual leasing volume generated by banks (both Islamic and commercial) reached JD116 million in 2007, while the cumulative leasing portfolio totalled JD190 million.

The five banks providing leasing services contributed to more than 58 per cent of total leases in 2007, compared to 41 per cent in 2006.

However, by the end of 2008, this surge in bank leasing slowed as the annual leasing volume generated by banks dropped by 30 per cent to JD80 million, while the cumulative leasing portfolio remained around the 2007 level of JD190 million.

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