Immovable properties: pro-Islamic banking body makes key Recommendations

The sub-committee on taxation, constituted by Finance Minister Ishaq Dar for the promotion of Islamic banking, has recommended the provincial governments to exempt registration of sale/purchase of immovable properties by banks/financial institutions under any Islamic mode of financing from the levy of capital value tax, registration fee, stamp duty, district/municipal/town taxes or any other related taxes.
Sources told Business Recorder here on Tuesday that the decision has been taken in the first meeting of the sub-committee held at the FBR Headquarters in which the tax issues facing b Islamic Banking Institutions (IBIs) at the federal and provincial levels were highlighted and various proposals were put forth for achieving tax neutrality for IBIs. For the implementation of the recommendations of the steering committee for the promotion of Islamic Banking, Finance Minister Ishaq Dar constituted a sub-committee on taxation. The sub-committee meeting discussed Tax Neutrality for Islamic Finance Institutions and their customers and review of tax-related matters of Islamic Bank subsidiaries of conventional banks.
Recommendations finalised in the meeting are being communicated to the federal and provincial governments, sources said. The first issue was related to the payment of stamp duty and registration fee and capital value tax at the provincial level on sale/purchase of immovable properties by Islamic banking institutions. It has been proposed that the provincial governments may be requested to exempt registration of sale/purchase of immovable property by banks from the levy of registration fee, stamp duty, district/municipal/town taxes or any other related-taxes under section 9A of the Stamp Act, 1899 by issuing the following notification to be published in the respective official gazettes:
"The registration of sale or purchase of immovable property by banks or financial institutions under any Islamic mode of financing approved by the State Bank of Pakistan or Securities and Exchange Commission of Pakistan, shall be exempted from the levy of registration fee, stamp duty, district, municipal or town taxes or any other related-taxes." Explanation: These taxes shall be levied once and not twice for normal transactions, whereas, in the case of sale and leaseback by SPV (special purpose vehicle) or bank, no tax shall be levied both at the time of purchase and sale back, the proposed notification added.
It has been proposed that the provincial government may issue a suitable notification to be published in the official gazette under sub-section (10) of section 7 of the Finance Act 1989 as under: The sale or purchase of immovable property by the banks or financial institutions under any Islamic mode of financing approved by the State Bank of Pakistan or the Securities and Exchange Commission of Pakistan shall be exempted from the levy of Capital Value Tax." The second issue discussed at the meeting related to the provincial Sales Tax on Services-Ijarah Muntahia Bittamleek.
Sources said that treating Ijarah Muntahia Bittamleek (IMB) transaction as operating lease, the Sindh Revenue Board (SRB) imposed sales tax on services on the gross amount of rental, whereas the conventional finance lease transactions are exempted from this tax. In IMTB depreciation is charged and the asset is transferred to the customer through a separate unilateral binding promise. It was proposed that since the economic substance of IMTB is the same as conventional finance lease, it should be treated at par from a tax perspective. In this respect, the SECP has been requested, through a letter, to approach the SRB for a resolution of the issue, the sub-committee recommended. The third issue pertained to the reduction of rate of stamp duty by provinces (on issuance and transfer of Sukuks and PTC's etc in the nature of redeemable capital).