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Financial I nstitutions & Instruments Tax Challenges & Developments

The 3 rd ITD Conference. Financial I nstitutions & Instruments Tax Challenges & Developments. Mr. O mer Mahgoub Ali Altoum Tax Advisor & Dr. Eltegani Abdel Gadir Ahmed Advisor, MOF. The 3 rd ITD Conference. بسم الله الرحمن الرحيم

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Financial I nstitutions & Instruments Tax Challenges & Developments

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  1. The 3rd ITD Conference Financial Institutions & InstrumentsTax Challenges & Developments Mr. OmerMahgoub Ali Altoum Tax Advisor & Dr. Eltegani Abdel Gadir Ahmed Advisor, MOF The 3rd ITD Conference - Beijing-China

  2. The 3rd ITD Conference بسم الله الرحمن الرحيم يقول تعالى: (يَا أَيُّهَا الَّذِينَ آمَنُواْ اتَّقُواْ اللّهَ وَذَرُواْ مَا بَقِيَ مِنَ الرِّبَا إِن كُنتُم مُّؤْمِنِينَ) (278) سورة البقرة O ye who believe! Fear Allah and give up what remains of yourdemand for riba, if ye are indeed believers.” The Holy Qur'an in verse 278 of Surah Al- Baqarah The 3rd ITD Conference - Beijing-China

  3. بسم الله الرحمن الرحيم يقول تعالى: (فَإِنْ لَمْ تَفْعَلُوا فَأْذَنُوا بِحَرْبٍ مِنَ اللَّهِ وَرَسُولِهِ وَإِنْ تُبْتُمْ فَلَكُمْ رُؤُوسُ أَمْوَالِكُمْ لا تَظْلِمُونَ وَلا تُظْلَمُونَ) (279) سورة البقرة If you do it not, take notice of war from Allah and His Messenger. But if ye turn back, ye shall have your capital sums. Deal not unjustly and you shall not be dealt with unjustly.” The Holy Qur'an in verse 279 of Surah Al- Baqarah The 3rd ITD Conference The 3rd ITD Conference - Beijing-China

  4. The 3rd ITD Conference • Overview • Sudan Economy • The Financial Sector • The Banking Sector • The non-banking Sector • Lessons Learnt The 3rd ITD Conference - Beijing-China

  5. Introduction The 3rd ITD Conference Sudan is an agricultural country. The agricultural sector: 80% of the workforce Contribution: 35 % of the GDP Economic Growth was strong. It increased by 10 % 2007 Now there is a notable Change due to the production of oil. The 3rd ITD Conference - Beijing-China

  6. The 3rd ITD Conference The financial sector in Sudan can be categorized into two distinctive segments: The Banking Sector which includes: The central bank of sudan 29 Commercial Banks 4 Specialized Banks The 3rd ITD Conference - Beijing-China

  7. The 3rd ITD Conference The Non- Banking Sector which includes: Khartoum stock exchange The bank deposit security funds Insurance companies Foreign exchange bureau The 3rd ITD Conference - Beijing-China

  8. The Banking Sector in Sudan The 3rd ITD Conference The Banking System is the sole supplier of banking activities in the country. The central Bank of Sudan (CBOS) is the bank of the government, its advisor and agent. CBOS is considered as a market organizer and supporter of the banking system. The 3rd ITD Conference - Beijing-China

  9. Performance of the banking sector The 3rd ITD Conference The overall performance of the banking sector for the past three years is positive. The volume of the banking sector consolidated balance sheet increased by 36% in 2006 and by 13% in 2007. Total deposits increased by 23% in 2006, and by 135 in 2007. Advances increased by 45% in 2006, and by 17% n 2007. Equity increased by 67% in 2006 and by 18% in 2007. The ratio of advances to liabilities jumped from 48 % to 93% The 3rd ITD Conference - Beijing-China

  10. Performance of commercial banks The 3rd ITD Conference number of operating commercial banks by end of 2008 totaled 32. The liberalization of the fiscal and finance policies related to the banking sector lead to the increase in banking finance from SDG 837.682 in 2006, and to 1.125.000 in 2007. The 3rd ITD Conference - Beijing-China

  11. The Non-banking Financial Sector The 3rd ITD Conference The non-bank financial sector is a key player in the Sudanese economy and in particular in the banking sector. As a matter of fact, the banking sector relies to a large extend on the financial resources of this sector. Let me shade some light on the performance of the non-banking sector. The 3rd ITD Conference - Beijing-China

  12. Insurance Companies The 3rd ITD Conference There is more than 15 insurance companies operating in Sudan. The insurance companies invest their fund in securities, sukuks and real estate as well as deposits. The overall performance of insurance companies is growing. The 3rd ITD Conference - Beijing-China

  13. Exchange Bureaus The 3rd ITD Conference The foreign exchange bureaus are private companies specialized in foreign exchange dealings. The 3rd ITD Conference - Beijing-China

  14. Khartoum Stock Exchange (KSE) The 3rd ITD Conference The Khartoum Exchange (KSE) was established in 1994. The main objective of (KSE) is to establish a profound capital market, and to increase the inflow of direct foreign investments. KSE also provides the services of both the primary and secondary markets, and raises the public awareness of investment opportunities. The 3rd ITD Conference - Beijing-China

  15. Sudan Financial Services Company: The 3rd ITD Conference The Sudan Financial Services Company (SFSC) is fully owned by the central bank of Sudan (CBOS), and the Ministry of Finance and National Economy. Among its main objectives, (SFSC) is to assist in the management of liquidity at the macro level. It also promotes dealing through the capital markets. The 3rd ITD Conference - Beijing-China

  16. National Social Funds The 3rd ITD Conference • In Sudan, the most known social funds are, the National Pension Fund (N. P. F), the National Social Insurance Fund (NSIF) & the Deposits Security Fund (D.S.F). The 3rd ITD Conference - Beijing-China

  17. Lessons learnt The 3rd ITD Conference • The progress achieved by Sudan in financial reforms has been substantial. • Overall, as with any other economic reform, financial reform is one important face of the coin - the other is social progress. • The Government of Sudan has been supportive of Islamic finance. The 3rd ITD Conference - Beijing-China

  18. Islamic finance in Sudan The 3rd ITD Conference Dr. Eltegani Abdel Gadir Ahmed Adviser & President: Higher Consultative Committee for Government Securities, Ministry of Finance, Sudan The 3rd ITD Conference - Beijing-China

  19. Contents The 3rd ITD Conference • Introduction • Sukuk in Sudan • Mechanism • Taxation • Conclusion The 3rd ITD Conference - Beijing-China

  20. Introduction The 3rd ITD Conference • Both Islamic finance and financial system trace their history back to the establishment of Faisal Islamic Bank, in 1977. • However, the bank commenced its operations in May 1978 with the objective of conducting all forms of financial activities disseminated all-over Sudan The 3rd ITD Conference - Beijing-China

  21. The 3rd ITD Conference • Two Financial papers based on Islamic modes of Finance. • Shihama is based on Musharakah. • Srh (Government Investment Certificates) “GIC”; based on Mudarabah, Ijarah, Murabaha…etc. The 3rd ITD Conference - Beijing-China

  22. The Higher Consultative Committee for Government Securities The 3rd ITD Conference • Due to success in the first generation of Sukuk (Shihama), the Committee is established. • It consists of complementary membership, including Ministry of Finance, Central Bank of Sudan (CBS), Khartoum Stock Exchange (KSE), Universities. The 3rd ITD Conference - Beijing-China

  23. Sukuk The 3rd ITD Conference • All parties participated in issuing Sukuk are represented in the above mentioned Committee. • The advantage of issuing government sukuk is that they are based on actual, tangible assets. • Such instruments help to contain the inflation level. The 3rd ITD Conference - Beijing-China

  24. Mechanism The 3rd ITD Conference Issuance of Sukuk depends on four parties: Investors (provider of capital “money”) Mudarib (SPV) – Agent (Wakil) – manager Ministry of Finance & National Economy “MoF ” (fiancée) Khartoum Stock Exchange (platform for selling and buying Sukuk “negotiation“. The 3rd ITD Conference - Beijing-China

  25. The 3rd ITD Conference • Investors (Rab al Mal) • Sudan Financial Services Co. (sfs) – Mudarib • MoF ( User of the finance) • KSE • KSE is the platform where Sukuk are sold and bought in the secondary market The 3rd ITD Conference - Beijing-China

  26. Features The 3rd ITD Conference • Matches with Shariah requirements • Cash, un-inflationary finance • Helps in managing supply of money, open market operations • Mobilization of funds outside the banking system • Used as collateral The 3rd ITD Conference - Beijing-China

  27. Srh The 3rd ITD Conference Srh is a financial document with nominal value in Sudanese pound (SDG), gives its holder the right to participate in financing the Government (MoF) through certain modes of finance, for the purpose to generate profit The 3rd ITD Conference - Beijing-China

  28. Mudarabah The 3rd ITD Conference • Mudarabah is a partnership in which one party provides the money (capital), while the other party provides the professional, managerial and technical know-how for starting and/or operating a business enterprise or project. • The profit is shared in a pre-agreed ratio. The 3rd ITD Conference - Beijing-China

  29. Shihama The 3rd ITD Conference • Financial pool is established consists of the ownership of the government in certain companies. • The pool will be divided into financial papers (Sukuk). • Sukuk will be sold to the investors. • Profit is computed based on the financial performance of the companies. The 3rd ITD Conference - Beijing-China

  30. Istisna The 3rd ITD Conference • Istisna is an agreement meeting the client’s need for an item, equipment, building, or project, which needs to be constructed, manufactured, or assembled. • It is a contract in term of which a person buys on the spot something that is to be manufactured which the seller undertakes to provide after manufacturing same using materials of his own according to designated Specifications against a determined price. The 3rd ITD Conference - Beijing-China

  31. Ijarah The 3rd ITD Conference • Ijarah(lease of objects): is the selling of a defined benefit against a specific consideration for a fixed period. • Ijara certificates of the Bank of Sudan (CICs) are backed by the buildings owned by the central bank. • According to the law, Sudanese banks must invest up to 30 per cent of deposits in CICs. The 3rd ITD Conference - Beijing-China

  32. Murabaha The 3rd ITD Conference • Murabaha belongs to the class of contracts in Islamic jurisprudence, called trust sales (Bia’ amana). • It has been recently developed to act as the major financing mode in Islamic banks in place of the forbidden interest- rate financing. The 3rd ITD Conference - Beijing-China

  33. Taxation The 3rd ITD Conference The tax treatment of Islamic finance Instruments may differ depending the characteristics and local tax law requirements of each country. The ease of the tax burden is the major aim of the program of tax reform. Islamic Insurance was given a range of tax incentives. In Sudan, there is also a separate Chamber for Zakat collection. The 3rd ITD Conference - Beijing-China

  34. Taxation (cont.) The 3rd ITD Conference • The stamp duty is levied at a rate of 0.5% of the principal amount. • The Sudanese Income Tax Act does not tax those instruments. • The VAT Act exempted them as a part of financialservices. • Profit of Shihama is also exempted form taxes in Sudan. The 3rd ITD Conference - Beijing-China

  35. Conclusion The 3rd ITD Conference • Islamic finance is finance that is consistent with the principles of Shariah. • Sudan’s Islamic economic system has proved to be effective. • It has been developing continuously since the establishment of the country’s first Shari’ah- compliant bank in 1978. • Among the countries that have introduced Islamic banking and finance, Sudan claims to have its financial systems in complete conformity with Islamic principles. The 3rd ITD Conference - Beijing-China

  36. The 3rd ITD Conference Sudan THANK YOU The 3rd ITD Conference - Beijing-China

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