In an amendment to tax laws, the South African government is looking to its listed corporates to build off its sovereign Sukuk issuance last year with the expanded inclusion of Islamic finance instruments within the tax regime.
In 2010, enactments were made in the Taxation Laws Amendment Act of 2010 recognising diminishing musharaka, mudaraba and murabaha as forms of Islamic finance equivalent to traditional finance entailing interest. Subsequently in 2011, the changes were made to the Act to introduce sukuk as another form of Islamic finance limited to Government.
A draft version of the Taxation Laws Amendment Bill, 2015 proposes that the current legislation in respect of murabaha and sukuk be extended to cover listed companies to come into operation on 1 January 2016
Some 1.5% of the population in South Africa is Muslim, though the updated tax laws are aimed more to attract inward foreign investment through capital looking for a Sharia compliant destination, rather than developing a domestic Islamic Banking sector.
South Africa issued its first Sovereign Sukuk in 2014 with a $500 million issuance priced at a profit rate of 3.90%. The issuance was described as “very though” by the Director of Debt Issuance and Management for the National Treasury Republic of South Africa, largely due to the learning curve involved. The South African Treasury has previously stated it may make further sukuk issuances in 2016.