Report Says Islamic Finance Taxed Unfairly In MENA Region

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The Qatar Financial Centre Authority last week released Phase One of a report on disparate tax treatment of Islamic financial products in the Middle East and North Africa.  The 83-page report on Cross Border Taxation of Islamic Finance in the MENA Region finds:

Islamic finance is of growing importance within the MENA region, but the taxation systems of almost all countries were developed in an environment of conventional finance. This can mean that Islamic finance suffers a tax burden that is not suffered by conventional finance.

The reason is that most transactions that are undertaken in Islamic finance seek to achieve economic outcomes which are similar to the economic outcomes achieved by conventional finance. However to achieve these economic outcomes the Islamic finance transactions typically require more component steps than do the equivalent conventional financial transactions....

The additional transactions required by Islamic finance are at risk of being subject to transfer taxes or to taxes on income or gains.... The researchers considered two alternative approaches to the modification of tax law to facilitate Islamic finance....