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Monday, 8 June 2020

FinMin allows consumer finance companies to deduct a larger portion of interest payments from their tax bills

REGULATION WATCH- FinMin allows consumer finance companies to deduct a larger portion of interest payments from their tax bills: Consumer finance companies will no longer be bound by a limit that saw the Tax Authority impose a cap on interest expenses it considers tax-deductible, according to a Finance Ministry decision issued Saturday. The limit previously allowed those companies to cross off interest expenses of up to four times their shareholders' equity from the profit calculated for tax purposes. Now, the full value of the interest expense will be deducted from net profit before tax before calculating the taxable income.

What this means: The cap meant that the Tax Authority only approved debt expenses less than four times any given consumer finance player’s net worth. This made lives harder for consumer finance companies, who profit by lending to individuals for the purchase of consumer goods and durables using large credit lines initially taken out from banks. Consumer finance players are now on par with others operating in financial leasing, real estate finance, factoring, securitization, insurance and some banks, the ministry said.

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