ISLAMABAD: The government has given tax neutrality to Islamic bonds (sukuk) by allowing certain tax exemptions that were earlier available only to conventional securitisation issues.

The move brings the issuance of sukuk on a par with their counterparts in terms of costs entailed.

The government has already amended the tax laws through an ordinance issued recently. Those amendments have now been notified through an ordinance.

High taxes on the Islamic mode of investments have rendered the issuance of sukuk unviable and restricted its growth in the country.

Before the proposed amendments, provisions were available in the income tax law to exempt the company to facilitate only issuance of term finance certificates (TFCs) under Companies (Asset Backed Securitisation) Rules of 1999. The income in this regard was completely exempt from withholding tax.

However, for issuing sukuk under the Issuance of Sukuk Regulations of 2015, the baseline assets are fixed assets that are the depreciable assets on which these extra taxes were levied.

The benefits available for launching sukuk are waivers of withholding tax at various stages during the sale or purchase proceeds and the capital gain tax on Shariah-compliant papers.

After the tax concession, it is expected that a good number of companies will now opt to become Shariah-compliant, which in turn will augment the capital markets and ensure industrialisation.

In the current fiscal year’s budget, the government introduced a tax concession of two per cent for Shariah-compliant manufacturing companies through the Finance Act to promote Islamic finance. The reduction is in the corporate tax from 33pc to 31pc.

Published in Dawn September 4th, 2016