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December 03, 2004
UK seeks not to disadvantage Shari'ah compliant savings
The Government is seeking to address any tax disincentives for Muslims wanting to invest in Shari’ah compliant savings, according to Financial Secretary Stephen Timms.
“We want to make sure that the tax system is completely even handed as far as Shari’ah compliant products are concerned. We don’t want them to face any tax barriers or tax constraints,” Timms told The Muslim News.
In his pre-budget report, Chancellor of the Exchequer, Gordon Brown, announced Thursday that the Government was consulting on “how to encourage further innovation and ensure that tax does not create an impediment to the development of new products in this area.”
“The Government recognises that individuals and businesses wish to have access to financial products that comply with Shari’ah Law,” he said.
Timms said that ministers were “very keen to promote savings and investments on the part or whole of our community.”
“We recognise that for a growing number of people want their savings in Shari’ah compliant products. We want to make sure that we are not accidentally in the tax system that is harder than it should be,” he said.
The Financial Secretary exampled the discrepancy in the way the tax law treats Shari’ah compliant savings, where customers generally receive a profit share, compared with interest payment.
Profit share is treated in the same way as a dividend for a UK company and is likely to be liable for the payment of corporation tax unlike interest payment received on savings.
“So that is a disincentive for an institution in offering Shari’ah compliant product. They would get a better deal if they offered an interest bearing product,” Timms said. “That is the kind of unfairness that we want to identify,” he said.
He added that the aim of the consultancy, which hopefully will result in legislative changes in next year’s Finance Bill, was to make sure that the tax system was not accidentally harder.
In recent years, the British Government has introduced legislation to make financial products, like mortgages, compliant with Shari’ah law.
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