Turkey and QFC identified as having most Islamic Finance friendly tax systems out of eight countries in MENA region
- Qatar: Wednesday, February 13 - 2013 at 12:40
- PRESS RELEASE
Turkey and the Qatar Financial Centre (QFC) have the most Islamic Finance friendly tax systems out of eight countries in the MENA region, reviewed in a study conducted by three leading experts, Mohammed Amin, Salah Gueydi and Hafiz Choudhury, and sponsored by Qatar Financial Centre Authority in partnership with the International Tax and Investment Center, based in Washington DC.
The study goes on to examine two alternative approaches a country can take to update its tax system to support Islamic finance transactions (referred to in the study as the UK model and the Malaysian model), and concludes by recommending the one that is adopted in Malaysia as being quicker and simpler to implement for Muslim majority countries.
The study reviewed the tax treatment of four common Islamic finance structures, commodity murabaha, sukuk, salaam and istisna in eight MENA region countries: Egypt, Jordan, Kuwait, Libya, Oman, Qatar, Saudi Arabia, Turkey, and also in the Qatar Financial Centre.
The detailed research work was led by Mohammed Amin who is an experienced Islamic finance consultant and was previously UK Head of Islamic Finance at PricewaterhouseCoopers LLP, with the collaboration of Salah Gueydi, Senior Tax Advisor, Ministry of Economy & Finance, Qatar and Hafiz Choudhury, Tax Administration and Policy Advisor, International Tax and Investment Center.
Ernst & Young's Qatar office coordinated the distribution of questionnaires to Ernst & Young's offices in the MENA region for completion and review by country tax authorities while PricewaterhouseCoopers Malaysia completed a questionnaire for Malaysia to provide a comparison from outside the MENA region. The United Kingdom provided a second non-MENA comparison, based upon Mohammed Amin's knowledge as a UK tax advisor.
The report is the first of a series. The team intends to extend the work in future studies to cover, for example, the impact of consumption taxes such as Value Added Tax on Islamic finance transactions, the cross border treatment of Islamic finance transactions within international double tax treaty arrangements designed primarily with conventional finance in mind, the Zakat treatment of Islamic finance transactions and the Shariah governance framework for Islamic finance. Other countries in the MENA region may also be reviewed in subsequent reports.
Ian Anderson, Chief Finance and Tax Officer at the QFC Authority, commented, "The QFC Authority welcomes the findings and recommendations of this pioneering study into the tax treatment of cross-border Islamic finance transactions within the MENA region. Islamic finance is of growing importance within the MENA region, but the taxation systems of almost all MENA countries were developed in an environment of conventional finance. This too often means that Islamic finance suffers an additional and therefore unfair tax burden not borne by conventional finance. This report points out the best way forward to help level the playing field in the MENA region and potentially beyond. We are delighted to have sponsored this research, the first of its kind, and support the development of Islamic Finance worldwide."
Daniel A. Witt, President, International Tax & Investment Center, said, "ITIC is proud to have been associated with this study. Part of our mission is to support countries in removing barriers from international trade and investment. In an increasingly globalized world, and rising prosperity in many Muslim majority countries, Islamic finance institutions are already a very important part of the financial infrastructure of global business. I believe that this study is the very first analysis of taxation issues across countries. We very much hope that it will start the dialogue within and between countries with active Islamic finance markets on dealing with the very real barriers to the growth of such markets raised by tax rules. We very much hope to continue this important work with the support of active financial centres such as represented by the QFC Authority and that of influential market players."
Mohammed Amin, the report's main author, commented, "The study shows clearly that the additional transactions required by Islamic finance to achieve economic outcomes similar to conventional finance are at risk of being subject to transfer taxes or to taxes on income or gains, and can make Islamic finance transactions prohibitively expensive."
"The Malaysian approach, which the report recommends, is based upon the regulatory authorities putting in place a process for advance determination of whether a transaction does or does not constitute Islamic finance. For those transactions which are certified as being Islamic finance, tax law can be modified relatively easily to give them the same taxation outcome as the equivalent conventional transactions. Where intermediate transactions are necessary to effect the Islamic finance structure, the intermediate transactions can be readily disregarded for tax purposes," he added.
"The United Kingdom approach, which we also reviewed, requires much more complex drafting of tax law, since no reference can be made to external Islamic finance sources although the UK's secular approach does have the merit of keeping religion out of tax law," he further added.
"We concluded that the Malaysian system is quicker and simpler to implement for Muslim majority countries," he concluded.
Articles in this section are primarily provided directly by the companies appearing or PR agencies which are solely responsible for the content. The companies concerned may use the above content on their respective web sites provided they link back to http://www.ameinfo.com
Any opinions, advice, statements, offers or other information expressed in this section of the AMEinfo.com Web site are those of the authors and do not necessarily reflect the views of AME Info FZ LLC / 4C. AME Info FZ LLC / 4C is not responsible or liable for the content, accuracy or reliability of any material, advice, opinion or statement in this section of the AMEinfo.com Web site.