Tax Bill aims to level playing fields for Muslims

Discriminatory tax exemption laws against Islamic banking will soon be reversed, paving the way for a growth in the banking sector.

That's what the national Treasury is hoping to achieve with amendments to the tax Bill, which is expected to be passed before the end of the year.

At present, mainstream bank clients earn interest on their investments and receive a tax exemption.

However, Islamic banking clients - consistent with the principles of Islamic law - do not receive interest. They are paid a profit share on their investments that do not enjoy a tax exemption.

Some of the changes in Islamic banking will relate to tax.

Another aspect of the proposed amendments will be home loans.

Sharia law requires that all finance is asset-backed. A bank will therefore take ownership of a house and rent it to the buyer, who will pay it off before becoming the owner.

Under current tax law, that process attracts an additional transfer cost. A proposed amendment will remove the double duty of transfers.

In the memorandum on the Taxation Laws Amendment Bill, the Treasury says one of the reasons for the change is that tax has become a hindrance to a "vibrant and growing Islamic market".

"This lack of access not only pre-judices Islamic finance, but also works against South Africa's financial role in non-Western markets."

Amman Muhammad, managing director of Islamic banking at Absa, said current tax laws discriminated against Muslims.

"We see this as a very progressive step by government, and we are very appreciative that Islamic finance has been brought into the spotlight."

He said that, with nearly 400 million Muslims in Africa, South Africa's Islamic banking system would become more accessible to African states.

Shabir Chohan, CEO of Albaraka Bank, said it was a positive step to try to make the country the head of Islamic banking on the continent.

"Some of the laws had limitations, but we managed to work around them. If the legislation is changed, Islamic banking can operate more or less how it was intended."

He said the changes would level the playing fields, enabling more players to enter the market.