VAT Guide to Value Added Tax - sri lanka inland revenue ...

18.13 Leasing inputs
• Leasing inputs can be claimed only when the leasing company (lessor)acquires
the leasing stock in their name.
18.13.1 Leasing Inputs – lessee transfers his own goods to lessor
• If lessee acquire goods/asset in the first instance and then go in for a lease with
a leasing company then the leasing company cannot claim input tax on the
acquisition of the asset as it was incurred by the lessee himself. The lessee has
paid VAT on its acquisition or import and later he has to pay VAT again on lease
rentals. All this is input tax in the hands of the lessee if he is a registered person.
• In such cases the intended lessee being the owner has to transfer the asset to
the leasing company and then request for a lease. Thus if the intended lessee is
a registered person he has to charge VAT on such transfer to the leasing
company. That becomes input tax in the hands of the leasing company.
18.13.2 Leasing inputs - lessee pays part of the sale price to vender
Sometimes it is also possible that the intended lessee pays part of the sale price
to vender of the asset and other part by the intended lessor. Thereafter the lease
agreement may be signed for the balance amount. In such cases there are 3
transactions.
• sale of goods by vendor to (intended) lessee
• sale of goods by vendor to (intended) lessor
• Lease transaction between lessor and lessee.
Output tax and input tax should be calculated in respect of each transaction if they all are
registered persons.
• Vendor charges output tax on the lessee (as a supply of goods) which is input tax
in his hands.
• Vendor charges output tax on the lessor (as a supply of goods) on the balance
amount which is input tax in his hands.
• Lessor charges output tax on lease rentals (as a lease) which is input tax in the
hands of the lessee.
18.13.3 Leasing inputs – Early settlement before 3 years
*
In the case of a leasing facility under a leasing agreement under the Finance
Leasing Act No. 26 of 2000 if the leasing facility is for a period of less than 3
years then the input tax in the hands of the lessor is restricted to 10% even if the
VAT paid on the purchase of the leased asset is 20%. This is applicable even
when there is an early settlement of a lease within 3 years.
* Eg. If it is assumed that the leasing company has purchased the van in the
earlier example for a sum of Rs.600,000/- from an importer, then the Company
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