The Muslim News - Penalties for Shari’ah compliant loans and savings to go

Issue 191, Friday 25 March 2005 - 14 Safar 1426

Penalties for Shari’ah compliant loans and savings to go

By Ahmed J Versi

Chancellor Gordon Brown announced last Wednesday that he would amend legislation to remove penalties in the Shari’ah compliant loan and savings products. Last year, he did the same with stamp duty because originally, the stamp duty had to be paid twice on Shari’ah compliant mortgage.
In an interview with The Muslim News, Financial Secretary, Stephen Timms, (right) said that the reason for the amendment was “to ensure a fair tax framework for Shari’ah compliant financial products. It is important that the tax system does not discriminate against those products.”
What Gordon Brown has done is bring some changes to the treatment for the Shari’ah compliant loan and saving products, specifically the Murabahah loan products, which involves repayments being made with a mark-up by instalments and Mudarabah saving products, which involve sharing in profits of investment. “What we will be doing in the Finance Bill is amending the rule for corporation tax, income tax and capital gains tax to make sure that the system is fair for those Shari’ah compliant products,” explained Timms.
The Government is also extending the stamp duty amendment legislated last year, to Scotland and to deal with a newly available product called the diminishing Musharakah product, which is a shared purchase Shari’ah compliant product.
Under the existing system these Shari’ah compliant products would have had to pay more tax. “What we are doing is to change the rule so that you don’t have to pay more tax. It is that the customers are paying no more tax than if they were buying other savings or loan products,” said Timms.
The Finance Bill will be published before the elections.
As to the issue of Childs Trust Fund, Timms promised that the Government was working with the Muslim Council of Britain to have Shari’ah compliant Childs Trust Fund. “I am quite confident that we will have a Shari’ah compliant Childs Trust Fund product probably by the summer,” he said. However, as it stands, he added, “you don’t have to use an interest bearing product at all. If you go for stakeholder, which is invested in shares, then there is no interest involved. But we want to make sure that the ethical concerns are picked up as well, so there is no involvement with alcohol or gambling, etc, as well as no interest. I am very hopeful that we would have a product that complies with all of that. People have their vouchers now and they need to choose an account within 12 months. So, if we can get Shari’ah compliant Childs Trust Fund by the summer, then people will be able to choose it in time.”

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