Draft 2027 budget law removes extra tax on Islamic home finance

Algérie 360 reports that the draft 2027 budget law removes an extra tax cost on Islamic financing, especially for buying a home, in Algeria.

Sofiane Mazari is an Islamic finance expert and a member of the Islamic finance commission of the Professional Association of Banks and Financial Institutions.

He said Islamic finance has grown by more than 20% a year in Algeria and now holds 6% to 7% of the banking market. He said the share could reach 8% very soon.

About a dozen banks offer products that follow Sharia principles, through specialised Islamic banks or Islamic counters.

Why the extra tax applied

Some Islamic financing carried more tax than a conventional loan, especially for buying a home.

In a murabaha, the bank buys the property and then sells it to its client. This double operation could lead to double taxation, which specialists call the double tax effect.

What the draft law changes

The draft 2027 budget law aims to align the tax treatment of the two types of financing, especially for property deals. It exempts property transfers made under murabaha or ijara from transfer duty.

Mazari said the measure removes the last obstacle to competition with conventional banks.

The client can therefore choose freely, without paying more because of the type of financing.

If Parliament adopts the bill, the change takes effect on 1 January 2027, less than two months away. Deputies are due to vote on the text on 16 November, before the Council of the Nation examines it.

How the two loans differ

In a murabaha, the bank sets the price of the financing and the instalments from the start. The client knows all commitments in advance, with no increase linked to a longer term, according to the contract.

A conventional loan uses an interest rate linked to the length of the loan. The longer the repayment period, the more the loan costs.

The two formulas meet different needs, and the choice rests with the client's situation.

Murabaha also finances other purchases, such as a new car. The National Bank of Algeria (BNA) offers murabaha financing of up to 90% of the price of a new car.

Each bank sets its own conditions.

Islamic finance now covers almost all banking operations. Customers can open savings accounts and obtain a range of financing.

New products appear regularly on the market. Some banks issue international Visa cards linked to an Islamic account.

The waiting time varies from 48 hours to 17 days depending on the bank, Mazari said. Some banks issue Visa or Mastercard cards within 48 hours, a similar period.

Islamic finance mainly attracts individuals, professionals and small and medium-sized enterprises.