Axis Capital Funding Regional Group Review: Equipment Leasing Status in Jakarta, Indonesia

Indonesia is one of the most famous archipelagic nations in Asia. To better understand their equipment leasing status and their market, let us know more about them first.

There are 17,500 islands that make up the archipelago with 240 million population residing in the main islands of Java, Borneo, Sumatra, Suwalesi and New Guinea. They are the fourth most populous country in the world. The country is not only rich with people but also with natural resources like oil, gas, tin, copper and gold among many others. Indonesia has placed 3^rd in the world for mineral resources. It has a republican government and is considered the most corrupt country in South East Asia according to the annual poll conducted by the Political and Economic Risk Consultancy (PERC).

Equipment leasing plays an important role in the country’s economy (US $5 billion) which has been driven by the mining and the plantation industries. Vehicle finance is the strongest contender in equipment leasing. Analysts predict that vendors and joint ventures will soon pave the way for the country’s equipment leasing to international experience. The country’s competitor in this field is Singapore, China and Thailand as Indonesia’s infrastructure industry is the fastest to develop in all Asia, according to reports and the need for leasing equipment is a must.

According to Vinod Kothari Report in 2013, leasing in Indonesia started in 1974 through a joint decree between the “Ministry of Finance, Industry and Trade and Cooperation on License for Leasing Companies”  While Indonesian market has huge potential being a fast growing developing nation, there are bottlenecks at the macro-level in terms of regulatory uncertainty, poor existing infrastructure, corruption etc. With a strong potential for leasing financing in Indonesia and few players to meet the demand, leasing is already on its growth trajectory.

Taxation of financial leasing in Indonesia is included in the decree of law. The rentals paid by the lessee to the lessor shall be expensed by the lessee throughout the lease period. In case of financial lease, the lessee has an option to buy the asset, once that option is exercised, the lessee will be able to claim depreciation on the capital asset on its residual value.

The lessor cannot claim depreciation on the capital goods. He can however do a non-taxable provision (for bad debts) equal to a maximum of 2.5% of receivables. In case this provision is not utilized, the same can be treated as income in the year of its realization. In the instance the provision proves insufficient to meet the losses, the same can be deducted from the gross revenue.

There is a very strong potential for leasing finance in Indonesia. Indonesia needs to invest hugely in areas such as medic al, IT, infrastructure, mining, agriculture, education and transportation.