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Thursday, 25 October 2012

Oman to amend tax legislation for Islamic finance

KPMG are advising the Government on how best to amend the tax legislation to ensure that Islamic financial institutions are not disadvantaged compared with their conventional peers.
"In Islamic finance, the way transactions are entered into is very different. You buy an asset and sell the same (instead of giving a loan and paying interest in conventional finance). If you look at the transaction as it is, the profit may be liable to tax in the first year, which may put the Islamic banks at a disadvantageous position compared to conventional banks,” Ashok Hariharan, Partner and Head of tax for KPMG in Oman, told the Times of Oman.
"As banks are getting ready for launching Islamic banking products, you should make sure that the tax regulations are also equally supportive to deal with this new development in the country, Hariharan added.
Khalid Yousaf, Director of Islamic Finance Advisory Services at KPMG, told the newspaper, "Every time you carry out a transaction in property, you have to pay three per cent (tax). If you do an Islamic mortgage under Ijara, or Morabaha, then the bank has to own the assets so that property first has to transfer to the bank's name.
“The bank then has to transfer it to the client's name, when the repayment is completed. If you compare it to conventional finance, you are paying 3 per cent extra, because it is an Islamic finance transaction and that means the Islamic finance transaction becomes unfavourably treated by the tax authorities.”
According to the report, KPMG is expected to complete the work within six months. However, the legislation process may take longer.
Yousaf is quoted as saying that the regulatory framework for Islamic banks was developed by Ernst & Young on behalf of the Central bank of Oman and the legal framework, which is the civil law, is already exists in the country. The Shari’ah law applies to families, inheritance and other matters and the taxation law needs to be amended now.
 (C.P.I Financial / 24 Oct 2012)

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