Tax breaks for South African sharia

October 27, 2010

South Africa is poised to pass new tax “neutrality” measures for sharia banking.  That means tax changes to encourage what they euphemistically call “foreign direct investment” (FDI).

The Arab News came out with this report late last month:

The South African government’s recent confirmation that it is in the process of introducing tax neutrality laws for Mudaraba (trust financing), Murabaha (cost-plus financing) and Diminishing Musharaka (diminishing shared ownership) contracts is a long overdue recognition of the potential Islamic finance has for the country and the region. Financial services industry sources stress that the proposed tax neutrality measures are just the start and the wider objective is to introduce a comprehensive regulatory and legal framework to facilitate Islamic finance in the country both for financial inclusion and market liberalization and development reasons.

It may also have something to do with the ambition of the country to develop Cape Town into an international financial hub, an ambition which was confirmed by Alan Winde, the finance minister of the provincial government of the Western Cape; and South Africa’s aim of attracting inward foreign direct investment (FDI) from the Middle Eastern countries and others such as Malaysia and Brunei…

Great!  We already have sharia finance hubs in London, Paris… Why not Cape Town?  This was followed up by the Business Report:

The Banker magazine reported recently that few parts of the global financial sector could claim to have continued growing in the past two years like Islamic financial institutions had – namely, asset growth of 64 percent.

It is thus no surprise that South Africa has joined Australia, Hong Kong and the UK and a growing number of non-Muslim countries in developing their Islamic finance sector by changing regulations that level the playing field for these transactions.

To achieve this Revenue will place a new insertion in the Income Tax Act that would take into account Shariah practices which involved profit and risk sharing and forbade the paying or receiving of interest or investment in certain industries.

“In the absence of special rules, the way Shariah transactions are treated for tax purposes creates unfair distortions,” says Islam Today…

Notice that we in the West are steadily changing our “secular” tax laws to accommodate their sharia law?  More on the growth of Islamic finance in South Africa can be found on Shariah Finance Watch here, and the Shia push for khums among South Africans on Money Jihad here.

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