Thursday, August 19, 2010

BNI Shariah Unit Contests Tax Office’s Rp 400b Levy in Double-Taxation Row

The Shariah unit of PT Bank Negara Indonesia, the nation’s fourth-largest bank, said it was in a dispute with the tax department over about Rp 400 billion ($44 million) of tax on Shariah financing.

BNI’s Shariah unit said last month that the government’s failure to address a key double-taxation issue for Islamic financing could potentially wipe out the funds in the country’s fledgling Shariah banking industry.

Rizqullah, vice president and head of projects at BNI’s Shariah unit, said last month that a law passed by the House of Representatives last year to remove double taxation for Islamic banks was not retroactive and could ruin the industry.

BNI’s Shariah unit has about Rp 400 billion of unpaid tax from the 2007 tax year, Rizqullah said last week, adding that the bank would not pay that charge because murabaha , or Islamic trade finance, transactions should be treated just like any other financing by conventional banks.

“We will file an appeal over the unpaid tax charged by the tax office,” said Ahmad Baiquni, a BNI director in charge of Shariah. “The board of directors has decided to file the appeal and go through all the process.”

Other banks that have Shariah units said they did not have such big exposure.

Under a murabaha scheme, a Shariah bank may extend financing, for example, for a motorcycle, by technically buying the motorcycle and selling it to the bank customer for a profit, as Shariah laws ban the payment of interest in such transactions. Islamic banks have argued that the purchase and subsequent sale should be treated as a single transaction for tax purposes and only taxed once, as in other countries with advanced Islamic markets.

Rizqullah said almost 70 percent of financing by Islamic lenders was done under the murabaha scheme.

The new law, which comes into effect in April, addresses the double-taxation issue but is not retroactive.

PT Bank Bukopin Syariah, which turned into a full Shariah bank last year, is in a dispute with the tax department over unpaid tax of less than Rp 100 billion, its president director Riyanto said. The unpaid tax was for the 2008 tax year, when it was still a Shariah unit of midsized lender PT Bank Bukopin.

PT Bank Syariah Mandiri, the Shariah unit of Bank Mandiri, has resolved a tax issue for less than 100 million rupiah and no longer has a tax dispute related to Shariah financing, corporate secretary Ahmad Fauzi said.

PT Bank Muamalat, the second-largest Shariah lender, has no problem with its tax payment, including value-added tax for murabaha financing, corporate secretary Delyuzar Syamsi said.

PT Bank Mega Syariah, the fifth-largest Shariah lender, also has no problem with the tax office, president director Beny Witjaksono said.

The tax department declined to comment on how widespread the problem was regarding disputes over double taxation, but said it would proceed to collect the unpaid tax from BNI’s Shariah unit.


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