The House committee on ways and means late Tuesday approved a bill seeking to organize and regulate Islamic banks in the country.
The bill, authored by Rep. Amihilda Sangcopan of AMIN Party-list and Pampanga Rep. Gloria Macapagal Arroyo, recognizes the role of Islamic banking and finance in generating opportunities for greater financial inclusion, especially for the underserved Muslim population.
The committee, chaired by Quirino Rep. Dakila Cua, tackled Section 14 of the bill, which provides for tax neutrality. It mandates neutral tax treatment between Islamic banking transactions and conventional banking transactions.
The bill mandates the Bureau of Internal Revenue to implement policies and guidelines to make tax neutrality conducive to the growth of Islamic banking and finance. The BIR is further given the power to modify applicable taxes on Islamic banking transactions.
“The nature of Islamic banking transactions is that if you don’t apply tax neutrality, it would entail the client double taxation,” said the bill’s authors.
Arroyo, the former President, said Section 14 should be amended to instead authorize the BIR to craft implementing rules and regulations.
Sangcopan appealed to the BIR and the Bangko Sentral ng Pilipinas to consider that Islamic banking is part of the country’s commitment to the Association of Southeast Asian Nations economic blueprint.
She pointed out that relative to other member states, the country’s progress on the matter is lagging, as only Laos and the Philippines do not have Islamic banking.
The bill authors’ position was echoed by Rosilio Prado, BSP Integrated Supervision Department II officer-in-charge, who said that one major challenge for Islamic banking is the unequal playing field against conventional banking.
For instance, a real estate loan from a conventional bank will have the bank provide the money so the client can purchase the land, Prado said.
In contrast, a real estate loan from an Islamic bank will have two legs. The bank will first purchase the land, and then resell it to the client. This points to a bigger cost compared to the same transaction in a conventional bank, Prado said.
The BSP official also discussed how conventional and Islamic banking would co-exist in the same country by employing flexible tax structures.
In Singapore, an Islamic transaction may be taxed on a consolidated basis. Instead of taxing the two legs of a sale, Singapore will tax the sale as a single transaction.
On the other hand, Donald Boo of the National Tax Research Center commented on the legislative delegation of power if allowing the BIR to modify tax laws. He said this would leave issuances by the bureau in legal limbo.
“We acknowledge that the BIR should be given enough room to implement the tax code. But in the absence of clear parameters on how to implement it, that question might arise,” said Boo.
The Department of Finance expressed no objections to the bill.
