Clause 52
Finance Bill
7:00 pm
Edward Balls (Economic Secretary, HM Treasury; Normanton, Labour)
The clause introduces tax rules on a type of Islamic bond known as a sukuk. In the Finance Acts of 2005 and 2006, we introduced legislation that set out the tax treatment of several sharia-compliant financial products, on which interest is not paid, but an alternative financial return is paid instead. The broad principle of the tax rules is that when a return paid to or by a saver or borrower is economically equivalent to interest, it is taxed as though it were interest.
Those measures were part of our wider agenda to make the City of London a global, wholesale financial centre for Islamic financial products and to ensure that the Muslim community in our country has the widest possible access to Islamic retail financial products. In pursuing our agenda to take forward those twin, complementary objectives, we have established a standing committee of Islamic finance experts, the first meeting of which I chaired a few weeks ago.
At the meeting, there was acclaim around the table for the consensual steps forward that we have taken in this House in previous Finance Acts. I am sure that the signal that the UK is changing its tax law in the whole Islamic finance area to encourage the commercial issuing of sukuk has been widely welcomed around the world. Our subsequent announcement that we are considering a Government bond issue that is consistent with sukuk principles has also been widely welcomed. That sends out a powerful signal.
The amendments make small but important technical changes, and were drafted as a result of the consultation. Although sukuk are economically similar to debt securities in law, they are not debts or loans, which gives rise to difficulties with applying the tax rules that normally apply to debts and loans. The interaction of the rules in the clause with certain tax rules was not fully appreciated when the Bill was published, and the amendments deal with some of those interactions. I am happy to answer more detailed questions on the amendments, which ensure that the Bill will achieve our announced intentions.