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South Africa Expands Islamic Finance Opportunities

by Lorys Charalambous, Tax-News.com, Cyprus

27 July 2015


It is proposed that the current legislation in respect of sukuk and murabaha financing will be extended to listed companies, within the 2015 Draft Taxation Laws Amendment Bill (TLAB) that South Africa's Ministry of Finance recently published for public comment.

As Sharia (law) forbids the payment and receipt of interest, South Africa has introduced a tax framework that essentially allows for asset-based financing from which the yield gives rise to tax on an equivalent basis to that on interest income.

South African Sharia-compliant financing arrangements have been introduced in stages, since enactments were made in the 2010 TLAB recognising diminishing musharaka, mudaraba and murabaha as forms of Islamic finance equivalent to traditional finance entailing interest.

In 2011, changes were made to the tax code to introduce sukuk bond financing arrangements, but these were restricted to the Government. This was extended to public entities from April 1 this year, and is now intended to be available to listed corporates from January 1, 2016.

It is also proposed in the 2015 TLAB that it will be possible for listed companies (in addition to banks, as at present) to engage in murabaha financing. Murabaha is described as an unconditional contract of sale between buyer and seller where the goods, cost price, mark-up, and payment date are all clearly defined and agreed upfront.

TAGS: South Africa | Finance | tax | investment | business | law | ministry of finance | legislation | islamic finance | legislation amendments | Africa | Tax

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