The enactment of the Income Tax Amendment Bill No.2 of 2023 has cleared all legal roadblocks to the commencement of Islamic banking products in Uganda.
Parliament on Tuesday, 27 June 2023 stood over the Income Tax Bill following disagreement over clause 1 of the Bill, which defines interest in the Act.
Shadow finance minister, Hon. Muhammad Muwanga Kivumbi and Attorney General, Hon. Kiryowa Kiwanuka, had to have multiple sessions of consultations to agree to the final definition of interest.
But Kiryowa Kiwanuka argued that clause 1(c) of the Bill amends Section 2(kk) of the Income Tax Act by defining Islamic financial business to mean “financial business undertaken by a person that conforms to Shari’ah principles…”
The definition of partnership is amended to read, in terms of clause 1(d) to mean “…association of persons carrying on business for joint profit, that includes an equity of partnership financing under Islamic financial business.”
Islamic insurance, known as ‘takaful’, an Arabic word that means ‘guaranteeing each other’, denotes insurance based on Islamic jurisprudence.
Reinsurance, which in Islamic banking terms is re-takaful, is also provided for in the amendment.
Section 67 of the principle Act is amended to create an obligation to withhold tax on the part of a non-resident partner under Islamic partnership as is required of any other taxpayer.
Terming the legislations historic, Hon. Asuman Basalirwa (Jeema, Bugiri Municipality) hailed Speaker Anita Among for seeing through the enactment of Bills which, if assented to by the President, will pave the way for the introduction of Islamic law compliant banking products.
“I want it to go on record that you presided over the passing of Bills that introduced Islamic banking in Uganda,” he said during the plenary sitting on Thursday, 29 June 2023.
He also sought to allay fears that the introduction of Islamic banking will ‘Islamise’ the country, arguing that the Constitution is determinate on the secular nature of the state of Uganda.
Speaker Among said there is need to conduct mass education on the benefits of Islamic banking, and asked finance state minister for general duties, Hon. Henry Musasizi, to organise workshops for MPs to bring them up to speed on the opportunities that Islamic banking presents.
Once assented to by the President, financial institutions and individual players will now introduce and participate in Shari’ah compliant banking, including insurance (takaful) and re-insurance (re-takaful).
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