The Tax applied on murabaha

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E. The Tax applied on murabaha

One of the major challenges facing the industry internationally is that tax laws generally cater for conventional banking products. This may lead to differences in tax treatment that may potentially place Islamic banks and their customers at a disadvantage compared to banks with conventional products. 10 In a Murabaha property finance transaction there is a double stamp duty property transfer tax which is implicit in the Islamic contract because it involves the transfer of title at the front and back end of the transaction because of the two sales. The first sale being when the bank purchases the asset from the seller and thereafter the second sale when the bank sells the asset to the customer at a cost plus profit mark-up. 11 Since Albaraka Bank is a member of AAOIFI Accounting and Auditing Organization for Islamic Financial Institutions, the interpretations of the proposed new tax laws will be if not already referred to the Shariah Board of AAOIFI for a ruling who will give the Shariah opinion in matters requiring collective Ijtihad reasoning or to settle divergent points of view, or to act as an arbitrator. 12 The tax system does not currently cater for Islamic financing, thereby hindering the growth of South African financial service activities 10 Interview with Mr Nazeem Abdurahmaan, Senior Islamic Financial Consultant at Albaraka Bank South Africa on the 03 December 2010 11 Interview with Mr Nazeem Abdurahmaan, Senior Islamic Financial Consultant at Albaraka Bank South Africa on the 03 December 2010 12 http:www.aaoifi.commembers.html 84 in this regard. A proposed amendment seeks to place certain Shari’a compliant products Mudarabah, Murabaha and Diminishing Musharaka on an equal tax footing with conventional finance products. One benefit of the proposal is to provide Islamic savings products with the R22 300R32 000 exemption for interest available to traditional savings products. 13 13 National Treasury releases for public comment a draft of the 2010 Taxation Laws Amendment Bills which give effect to the 2010 Budget tax proposals. The draft legislation and explanatory memorandum can be found on the National Treasury www.treasury.gov.za and www.sars.gov.za websites. 85

CHAPTER V OUTCOME OF RESEARCH