Car leasing in Brazil faces new legislation
Although leasing can be an interesting option for individuals seeking to have their own car, some fleet managers in Brazil are facing obstacles when it comes to growing their leasing business, and much of this is due to legislation.
One of the largest and most recent legislative changes which will complicate car leasing in the country is the way the ISS service tax is applied to leasing firms.
In the past, some companies would move to a city (e.g. Barueri, São Paulo) where the ISS tax is lower (0.2% - 0.5%) to help boost profit.
However, by 2018, ISS - specifically for car leasing - will be based on the city or town the client (lessee) is located in and not where the leasing company (lessor) is located. Also part of the law is a minimum tax rate of 2%.
Besides increasing the tax rate, charging ISS based on the address of each client will make business more difficult to manage, especially in a country the size of Brazil which has more than 5,500 municipalities. Imagine charging tax and redirecting payments to numerous cities and towns throughout the country.
This could end up discouraging car dealers from leasing outside their state or city, or even stop them from offering any type of leasing at all so that they can focus solely on car sales.
Meanwhile, two other things leasing companies need to deal with are IPVA personal vehicle property tax and traffic tickets. In Brazil, both fall under the responsibility of the car owner (lessor) and not the driver (lessee) so this will require a lot of organization on the part of the leasing company.
IPVA represents 4% of the book value of cars running on gasoline and 3% of the those running on ethanol, electricity or natural gas. All double cab pickups, however, are charged 4% while utility vehicles, mini-vans and motorcycles get taxed 2%.
Besides having to manage the IPVA payment schedule as due dates differ depending on the license plate number of the vehicle, the tax amount changes every year as it is related to the depreciating value of each car.
This, however, could be resolved by tacking on IPVA payments into the overall leasing payment along with other things such as insurance and maintenance.
Finally, despite IPVA being a reasonable expense to some, assuming the responsibility of traffic tickets is definitely something that leasing companies do not want to bear. This would require continuously managing client ticket history as well as the billing of them when necessary.
Not all is bad
Despite these challenges, automobile dealers in search of leasing can still overcome them through the management and upkeep of a well organized data base system. The extra management costs could be regained by increasing leasing fees but study the market so that you still remain competitive.
According to Osmar Pinho who is the president of Brazil's leasing companies association Abel, Brazilians historically prefer to own than lease but the buying culture could be changing soon.
"Operational leasing is a very small part of the automobile market, but I believe it will be responsible for the increase in automobile sales in the next few years," said Pinho in a report by local automobile publication Quatro Rodas.
In today's sluggish economy, not having to pay a deposit and making lower monthly payments may attract more lease goers in the near future. "It is only a matter of time that Brazilians will start feeling that pay-to-use is more viable than pay-to-have," says Pinho. | 08/08/2017 | Daniel Bland