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09-03-2016, 05:41 AM
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IT Ordinance amended to encourage Islamic financial system
The ordinance, issued on August 31, 2016, on the recommendation of the Securities and Exchange Commission of Pakistan (SECP), will provide the impetus required for overcoming the lagging interest in the issuance of this Islamic financial instrument. Interestingly, while Pakistan has taken this initiative **w, countries like the UK, Luxembourg, Singapore and others have already offered tax concessions to Sukuk. According to the SECP sources, difference in the tax treatment of conventional TFCs and Sukuk had rendered the issuance of Sukuk unviable, adding that amendments to the tax law will **w provide the same tax exemptions bringing the issuance of Sukuk on par with their counterparts in terms of the costs entailed. It is explained that prior to the proposed amendments, provisions were available in the Income Tax law to exempt both, the originator (the company) and the special purpose vehicle (SPV) to facilitate only issuance of TFCs under Companies (Asset Backed Securitisation) Rules 1999 against receivables. SPV’s income was completely exempt under Section 136 of the Second Schedule and specific exemptions from withholding tax under sections 151, 153 and 233 were also available to SPV and the originator. However, for the purpose of issuance of Sukuk under the Issuance of Sukuk Regulations, 2015, the base-line assets are fixed assets (depretiable assets) on which following extra taxes were attracted on the originator as well as SPV: Taxable gain on transfer of assets to SPV in the hands of originator; withholding tax on sale proceeds by SPV to originator against transfer of assets; withholding tax on payment of rentals by originator to SPV; Tax on rental income earned by SPV; Tax on gain of transfer-back of assets by SPV to originator; and withholding tax on payment by originator to SPV at the time of transfer-back of assets. Earlier this year, the sources said that the government had also introduced a tax concession of 2% for Shariah compliant manufacturing companies through the Finance Act 2016 to promote Islamic finance in Pakistan. The tax concession, along with tax neutrality for Sukuk, is considered a welcome decision, and it is expected that a reasonable number of companies will opt to become Shariah compliant which would in turn augment the capital markets and ensure industrialisation, expansion, etc. The sources said that an analysis of the latest audited financial data of listed manufacturing companies reveals that as per the criteria prescribed by the SECP jointly with FBR and SBP, currently only one company qualifies for a 2% tax concession and seven other companies can easily avail the incentive provided that they convert their interest-bearing investments to Islamic instruments. Similarly, several other companies can benefit provided they convert the conventional leveraging and investments to Islamic financing. In order to qualify for tax concession, companies need to issue Sukuk and shares by the end of year 2016. Tax neutrality for Sukuk coupled with the 2% tax concession provides incentive to the companies to become Shariah compliant immediately, the sources explained. Sukuk refers to the Islamic equivalent of bonds and is structured in such a way so as to generate returns to investors without infringing on Islamic law (which prohibits riba or interest). According to the sources, the global Sukuk market which has **w reached $300 billion is emerging to become an integral part of the mainstream global eco**my and changing the financial landscape. The Islamic financial solutions (Sukuk) are often demand-driven largely by investors who have strong preference for products that are compatible with their faith. Considering the growing share of the global Gross Domestic Product of Muslim countries and their huge youth demographic composition, it is believed, the world will observe more demand for Sharia-compliant products and solutions in coming years. أكثر... ??????? ??????: IT Ordinance amended to encourage Islamic financial system || ??????: ahlam1399 || ??????: اسم منتداك
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