Taxation for Islamic banking: amendments in legal framework under review: MoF
Ministry of Finance on Tuesday stated that amendments in legal framework are under review with the objective to strengthen the framework and development of taxation proposals for Islamic Banking in the country. Ministry of Finance, in a written reply to a Private Member Bill for eradication of Riba, informed the National Assembly's Standing Committee on Finance that the SBP and SECP are working on proposals to facilitate development of an Islamic capital market.
"The legal framework - Banking Companies Ordinance -1962 and SBP Act- 1956 - are under a review process in order to further strengthen the legal framework and development of proposals for taxation for Islamic Banking". The SBP is collaborating with the SECP in order to promote Islamic finance in the country and has also created a dedicated Islamic Finance Department, which has started taking initiatives for building necessary infrastructure for development of Islamic capital market.
These initiatives mainly include, review of Mudaraba guidelines to align those with overall regulatory framework of Islamic Finance in the country, issuance of Sukuk guidelines, issuance of Takaful rules and government Iajra Sukuk. The federal government in co-ordination with the SBP issued dedicated policies for laying sound foundations for Islamic Banking industry including licensing requirements, guidelines on Shariah compliance and other operational matters of Islamic Banking Institutions (IBIs).
A multi-tiered Shariah supervisory and compliance framework has been put in place and recently issued Shariah governance framework for IBIs, which explicitly defines Shariah related rules and responsibilities of all key organs of IBIs including board of directors, the executive management and Shariah boards to further strengthen the Shariah compliance environment in Islamic banks. It also institutionalises the Shariah compliance function in IBIs.
The rationalisation of Minimum Capital Requirement (MCR) for Islamic Banking subsidiary with the objective of encouraging banks to move towards a subsidiary based model, the SBP revised the initial MCR for an Islamic Banking subsidiary from Rs 10 billion to Rs 6 billion in October, 2014.
The meeting was further informed that in order to facilitate Islamic Banking industry in liquidity management and have more effective transmission of monetary policy, the SBP decided to conduct outright purchase or sale of government of Pakistan Ijara Sukuk (GIS) either on deferred payment basis (Bai-Muajjal) or on ready payment basis through Open Market Operations (OMOs) through a competitive auction process.
Owing to the importance of trade in economic development of the country, the SBP has been striving to ensure that credit requirements of genuine exporters from the banking system are not affected. In this regard, similar to the export refinance facility available to conventional banks, the SBP is offering a Musharakah based Islamic Export Refinance Scheme (IERS) for the business community. The proposed "Eradication of Riba Bill 2015" suggests amendments in 28 different laws for removal of word "interest" wherever appearing in the meaning of Riba in the laws and reorganization and substitution of paragraphs.
"The legal framework - Banking Companies Ordinance -1962 and SBP Act- 1956 - are under a review process in order to further strengthen the legal framework and development of proposals for taxation for Islamic Banking". The SBP is collaborating with the SECP in order to promote Islamic finance in the country and has also created a dedicated Islamic Finance Department, which has started taking initiatives for building necessary infrastructure for development of Islamic capital market.
These initiatives mainly include, review of Mudaraba guidelines to align those with overall regulatory framework of Islamic Finance in the country, issuance of Sukuk guidelines, issuance of Takaful rules and government Iajra Sukuk. The federal government in co-ordination with the SBP issued dedicated policies for laying sound foundations for Islamic Banking industry including licensing requirements, guidelines on Shariah compliance and other operational matters of Islamic Banking Institutions (IBIs).
A multi-tiered Shariah supervisory and compliance framework has been put in place and recently issued Shariah governance framework for IBIs, which explicitly defines Shariah related rules and responsibilities of all key organs of IBIs including board of directors, the executive management and Shariah boards to further strengthen the Shariah compliance environment in Islamic banks. It also institutionalises the Shariah compliance function in IBIs.
The rationalisation of Minimum Capital Requirement (MCR) for Islamic Banking subsidiary with the objective of encouraging banks to move towards a subsidiary based model, the SBP revised the initial MCR for an Islamic Banking subsidiary from Rs 10 billion to Rs 6 billion in October, 2014.
The meeting was further informed that in order to facilitate Islamic Banking industry in liquidity management and have more effective transmission of monetary policy, the SBP decided to conduct outright purchase or sale of government of Pakistan Ijara Sukuk (GIS) either on deferred payment basis (Bai-Muajjal) or on ready payment basis through Open Market Operations (OMOs) through a competitive auction process.
Owing to the importance of trade in economic development of the country, the SBP has been striving to ensure that credit requirements of genuine exporters from the banking system are not affected. In this regard, similar to the export refinance facility available to conventional banks, the SBP is offering a Musharakah based Islamic Export Refinance Scheme (IERS) for the business community. The proposed "Eradication of Riba Bill 2015" suggests amendments in 28 different laws for removal of word "interest" wherever appearing in the meaning of Riba in the laws and reorganization and substitution of paragraphs.
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