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DOHA: The Qatar Financial Centre (QFC) and Turkey have the most Islamic Finance-friendly tax systems out of eight countries in the Mena region.
The Phase-1 of a study, sponsored by QFC in partnership with the Washington DC-based International Tax and Investment Center,showed that while simpler Islamic finance transactions can be carried out in some countries without prohibitive tax costs, of the countries reviewed only Turkey and the QFC have a tax system that enables sukuk transactions to be carried out without excessive tax costs.
The study, conducted by three leading experts, Mohammed Amin, Salah Gueydi and Hafiz Choudhury, examined two alternative approaches a country can take to update its tax system to support Islamic finance transactions, 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 QFC.
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.”