Parliament has been advised to carefully deliberate the enactment of the requisite laws to govern the operations of Islamic Banking in Uganda, warning of the likely ramifications in case of any lapse.
Tax expert, Cephas Birungyi, a Team Leader at Birungyi, Barata, and Associates and a representative of the ULS underscored the need for a cautious approach in implementing the proposed legislation on Islamic Banking.
Currently, Parliament’s Committee on Finance, Planning, and Economic Development together with the Bank of Uganda are working to ensure that legislation enabling the introduction of Islamic banking products in Uganda is enacted.
While appearing before the Committee on Monday, Birungyi, highlighted the Uganda Revenue Authority – URA staff have not yet been comprehensively trained in Sharia Law and Sharia law taxation which possess potential risks new tax bills are introduced.
Birungyi explained to the Committee that the portals of URA for Electronic tax are set in certain terms, which calls for change to software to conform to the prevailing provisions, adding that implementing the legislation without proper software development would be premature and legally challenging.
He called for a thorough examination and separate legislation to govern Islamic Banking citing that Sharia Law took some time to be developed, and therefore implementers need more time for proper training to be able to identify those going by the proposed and those who are not.
Further, Birungyi raised concerns about Section 75A of the principal Act, which allows the Commissioner General of the URA to re-characterize arrangements under Islamic financial business for the purpose of reflecting equivalent economic substance under conventional financial services.
He argued that incorporating Islamic Banking into the tax system would create a situation where the interpretation of not only tax but also religion becomes necessary. Citing the challenges of implementing Sharia Law alongside domestic law, Birungyi called for the need to apply solid Sharia principles in re-characterizing tax laws.
He cautioned that incorporating Islamic Banking into the existing tax system may complicate compliance in the financial sector, and proposed the establishment of a distinct tax regime dedicated to Sharia Law to ensure clarity and avoid confusion.
In response, Amos Kakunda, the Committee Chairperson recognized the potential economic benefits of Islamic Banking but called for a balance between providing new financing options and thoroughly assessing the implications of such legislation.
The Elgon County MP, Gerald Nangoli, expressed concern over the limited time given to the finance committee to process the bills, highlighting the difficulty of explaining the legislation to the public without adequate consultation time.
Bank of Uganda issued the Financial Institutions (Islamic Banking) Regulations in February 2018 to cater for the technical aspects unique to Islamic financing, and to operationalize the amendments related to Islamic Banking in the Financial Institutions Act 2004.
One key requirement of the Regulation is the establishment of a Shariáh Advisory Council (SAC) at the Bank of Uganda to be responsible for ensuring that all Islamic financial products presented and marketed as such, meet Shariáh based criteria.
In a recent communique, Dr. Tumubweinee Twinemanzi, the Executive Director of Supervision at the Bank of Uganda said various entities have expressed interest in establishing Islamic Banking entities in Uganda with three applications being processed.
Among the application include; one for an Islamic products window by a locally domiciled conventional Bank, and two applications by foreign entities interested in establishing fully fledged Islamic Banks. If passed into law, Uganda will join other African countries that have adopted Islamic banking but are non-Islamic states.
Currently, Islamic Banking is being practiced in various jurisdictions around the World including countries like South Africa, Nigeria, Mauritius, Botswana, Kenya, Tanzania, Rwanda, Senegal, Algeria, Egypt, Sudan, and Tunisia.
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