26 May 2013
Muscat: KPMG has submitted its recommendations for amending the country's tax law to the Ministry of Finance. The recommendations aim to ensure that Islamic financial institutions are on a level playing field with their conventional counterparts.
According to the recommendations, all Islamic finance transactions should be treated on par withconventional financial products for taxation purpose.
"We have been asked to look at the tax law and ensure that Islamic financial institutions are put in neither an advantageous nor a disadvantageous position compared to its conventional peers," Ashok Hariharan, partner and head of Tax for KPMG in Oman, told the Times of Oman.
In Islamic finance, transactions are entered into in a very different way. In the case of a five year tenure transaction, an Islamic bank buys assets and sells the same on a deferred payment basis to make a profit. According to the laws, the entire profit amount has to be taxed in the first year itself instead of spreading over a five year period, which will be disadvantageous for Islamic banks, said Hariharan.
Khalid Yousaf, director of Islamic Finance Advisory Services at KPMG, added that with the new amendment, Islamic finance transactions are disregarded for tax purposes. Islamic finance instruments like Murabaha (or deferred payment on purchases) and Musharaka will be equivalent to loans. The recommendations of the international audit firm will circulate among different ministries and agencies to finalise the amendments.
Apart from the Ministry of Finance, the Ministry of Legal Affairs Majlis A'Shura will also look into the KPMG report and put forward their recommendations. If everything goes well, the amendments will be announced sometime towards the end of the year.
Financial reports
Yousaf said that the Islamic financial institutions have to recast their financial reports in International Financial Reporting Standards (IFRS) only for tax purposes. Islamic banks are following the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) standards for reporting purposes.
Further, Islamic banks have to recast their data for consolidation with the national data prepared by the Central Bank of Oman, which is also done in IFRS format. Of the 67 countries that have Islamic financial institutions, only 10 (including Oman) have made it mandatory to follow Auditing Organisation for Islamic Financial Institutions standards for reporting.
Muscat: KPMG has submitted its recommendations for amending the country's tax law to the Ministry of Finance. The recommendations aim to ensure that Islamic financial institutions are on a level playing field with their conventional counterparts.
According to the recommendations, all Islamic finance transactions should be treated on par withconventional financial products for taxation purpose.
"We have been asked to look at the tax law and ensure that Islamic financial institutions are put in neither an advantageous nor a disadvantageous position compared to its conventional peers," Ashok Hariharan, partner and head of Tax for KPMG in Oman, told the Times of Oman.
In Islamic finance, transactions are entered into in a very different way. In the case of a five year tenure transaction, an Islamic bank buys assets and sells the same on a deferred payment basis to make a profit. According to the laws, the entire profit amount has to be taxed in the first year itself instead of spreading over a five year period, which will be disadvantageous for Islamic banks, said Hariharan.
Khalid Yousaf, director of Islamic Finance Advisory Services at KPMG, added that with the new amendment, Islamic finance transactions are disregarded for tax purposes. Islamic finance instruments like Murabaha (or deferred payment on purchases) and Musharaka will be equivalent to loans. The recommendations of the international audit firm will circulate among different ministries and agencies to finalise the amendments.
Apart from the Ministry of Finance, the Ministry of Legal Affairs Majlis A'Shura will also look into the KPMG report and put forward their recommendations. If everything goes well, the amendments will be announced sometime towards the end of the year.
Financial reports
Yousaf said that the Islamic financial institutions have to recast their financial reports in International Financial Reporting Standards (IFRS) only for tax purposes. Islamic banks are following the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) standards for reporting purposes.
Further, Islamic banks have to recast their data for consolidation with the national data prepared by the Central Bank of Oman, which is also done in IFRS format. Of the 67 countries that have Islamic financial institutions, only 10 (including Oman) have made it mandatory to follow Auditing Organisation for Islamic Financial Institutions standards for reporting.
Times of Oman 2013
