New Islamic tax laws ‘will spur investment’

NEW tax laws will level the playing field between Islamic banks and conventional banking, say banking and tax analysts. The new laws are intended to encourage foreign direct investment into SA, says Amman Muhammad, MD for Absa Islamic Banking. Islamic banking is in its infancy in SA. Albaraka Bank and the Islamic Bank were the first Islamic banks to be granted a licence by the Reserve Bank in the 1980s. The proposed amendments to the Income Tax Act take into account three different types of Islamic financing on which one can develop products. First , mudurabah, a form of deposit where the client invests with a bank and, the bank invests deposits in Sharia -compliant enterprises or products. Second , murabaha, which is a mark-up financing transaction offered by a bank so that a client can obtain financing for various assets, such as property and equipment. Third, diminishing musharaka, a partnership arrangement usually used for project financing. Mr Muhammad hopes that the implementation of a sovereign sukuk (Islamic bond) will be the next step by the government.