Sukuk don’t help terrorists
By Kim Da-ye
A “sukuk” expert rebutted Tuesday a claim by Christian churches that a percentage of profit from the Islamic bonds could go to terrorists or Islamic fundamentalists.
“Zakat is a community tax similar to religious taxes paid all over the world. Sukuk are bond-type securities. How can we be speaking about them in the same sentence? Where is the link?” said John A. Sandwick, a Geneva, Switzerland-based expert on Islamic finance in an email interview with The Korea Times.
Local politicians argue that 2.5 percent of income from issuing sukuk will be collected as zakat, a tax for the poor, and go to Islamic charities, some of which fund extremists.
Sandwick said that connecting sukuk, zakat and terrorists is “so silly that he would normally not even answer” because zakat is “completely unrelated” to the issuance of sukuk.
He said opponents seem to assume that terrorists will buy Korean government’s sukuk and use the profit payment to finance their operations.
“If terrorists have globally diversified portfolios in accounts at big banks then I would be quite surprised,” Sandwick said. “And if they do] they could also just as easily buy shares in Samsung or bonds from Toshiba.”
He said sukuk should be treated the same as conventional bonds, noting, “A tax break implies giving someone a favor. No one is asking for any favors.”
Sandwick is an Islamic wealth and asset management consultant who created the first-ever sukuk fund.
He said distributions on sukuk are in all essence identical to interest on bonds, so they should be taxed in the same manner.
Sharia, or Islamic law, bans charging interest on loans, so borrowers instead share profits from loans with lenders.
The profit sharing may sound similar to dividends paid to stockholders, but the California-born banker said sukuk doesn’t share the same risks and rewards as equity.
He explained that a bond pays interest twice a year to investors, as do sukuk. The difference is that sukuk distribute profits, not interest.
While dividends from equities vary depending on firms’ earnings, sukuk’s distributions are usually priced at a premium above the common LIBOR reference interest rate, “just like bond interest is priced,” Sandwick said.
The profit sharing from sukuk involves asset flows, which could be subject to transfer and value added tax, and acquisition and registration fees. That could significantly reduce the return on Islamic bonds.
The Ministry of Strategy and Finance’s proposal to lift those taxes to foster an Islamic finance sector in Korea was slammed as discriminating against other assets by some politicians and Christian groups.
“If governments were to tax these distributions as if they were dividend interest then the entire sukuk market would be eliminated,” Sandwick warned, explaining that several developed economies like the U.S. treat sukuk like bonds on a tax basis.
The expert said that a sukuk issuer does not receive better terms than a bond issuer. Then why would governments and companies outside the Muslim world issue sukuk?
“To diversify sources of capital,” Sandwick said.
“Traditional issuers of bonds should look at the sukuk market only as a diversification away from conventional bond markets.”
He said that there are many Islamic treasuries who “desperately” seek to diversify their assets by purchasing Islamic bonds from many different types of issuers and in various currencies.
“수쿠크, 테러리즘 관련없다”
“자캇은 종교세와 같은것이고, 수쿠크는 채권종류의 증권입니다. 어떻게 둘을 엮일 수 있나요?”
이슬람금융 전문가 존 샌드윅씨는 코리아타임즈와의 인터뷰에서 수쿠크의 이익이 테러집단으로 돌아가기 위해서는 테러리스트들이 크고 다양한 금융 포트폴리오를 가지고 한국 정부가 발행하는 수쿠크에 투자해야 할 것이라고 말했다.
하지만 테러집단들이 그러한 계좌를 갖기는 쉽지 않을 뿐더러, 그렇게 투자할 수 있다면 삼성이나 도시바의 주식을 사는 것과 별반 다를 것이 없다고 반박했다.
제네바에서 이슬람금융 전문가 및 컨설턴트로 활동하고 있는 샌드윅씨는 수쿠크에 대해 “면세”라는 표현은 적절하지 않다고 말했다. 주식과 달리 수쿠크는 채권과 같이 일년에 두 번 이자와 동등한 이익을 분배하고, 이익도 발행집단의 이익에 따라 달라지는 것이 아니라 LIBOR에 기초하기 때문이다.