The House of Representatives is crafting legislation authorizing the revenue agency to make adjustments ensuring zero-tax impact on financial transactions conducted by Islamic lenders and, in this manner, help boost what little Islamic banking is happening in the country.
There is an unnumbered substitute bill that recognizes the role of Islamic banking and finance in generating opportunities for greater financial inclusion among Filipinos, especially for the underserved Muslim population.
At the public hearing conducted by the House Committee on Banks on Tuesday, legislators zeroed in on Section 14 of the proposal providing neutral tax treatment on Islamic banking products.
The proposal is for the Bureau of Internal Revenue (BIR) to implement tax-neutral policies and guidelines helping make possible the growth of Islamic banking and finance in the country.
The BIR is given the power to modify applicable taxes on Islamic banking transactions.
Party-list Rep. Amihilda J. Sangcopan of Anak Mindanao, one of the principal authors, said, “The nature of Islamic banking transactions is that if you don’t apply tax neutrality, it would entail the client double taxation.”
Bangko Sentral ng Pilipinas (BSP) Officer-in-Charge Rosilio O. Prado acknowledged the uneven competitive field facing Islamic banks in the Philippines relative to their conventional banking colleagues.
Sangcopan claimed a real-estate loan from a conventional bank will have the bank provide the money so the client can purchase the land.
In contrast, a real-estate loan from an Islamic bank has two legs.
The bank will first purchase the land and then resell it to the client. This entails a higher cost for the Islamic transaction compared to that of a regular commercial bank.
Sangcopan reminded the BIR and the BSP that Islamic banking is part of the country’s commitment to the Asean economic blueprint.
She also said only Laos PDR and the Philippines do not have Islamic banking provisions that promote Sharia-compliant lending like the other members of the Asean.
Sangcopan said Islamic finance is a $2.5-trillion business dominated by Malaysia, which owns 64 percent of the global sukuk or Sharia-compliant bond market worldwide. There are also more than 60 Sharia-compliant bonds traded at the Philippine Stock Exchange.
“Undeniably, it has evolved from a faith-based economic system with clear rules to that of an emerging global industry,” she added.
There are now more than 30 Islamic financial institutions operating in over 75 countries.
“The Philippines, then, has to address its own challenges by making major changes in terms of regulatory framework and the reintroduction of taxes and incentives. The Philippines is, in fact, a pioneer in Islamic finance,” Sangcopan said.
According to the lawmaker, the state-owned Al-Amanah Islamic Investment Bank is one of the oldest Islamic banks in the world, established in 1974, and has expanded operations in Cagayan de Oro, Cotabato, Davao, General Santos, Iligan, Marawi, Zamboanga, Jolo
and Makati.