New Law Aims to Cut Islamic Finance Costs in 2027
Algeria's draft 2027 Finance Law includes provisions to eliminate fiscal surcharges on Islamic finance, aiming to enhance its competitiveness and affordability for consumers. This measure seeks to remove the historical "double fiscal effect" impacting certain Sharia-compliant financing operations.
Algeria's proposed 2027 Finance Law is set to introduce significant changes for Islamic finance, specifically targeting the elimination of fiscal surcharges that have previously affected its competitiveness. This legislative initiative aims to make 'halal' financing more affordable and accessible to a wider client base. Islamic finance in Algeria has experienced robust growth, progressing over 20% annually and currently representing between 6% and 7% of the banking market, according to Sofiane Mazari, an expert in the field.
The core of the planned fiscal reform addresses the "double fiscal effect" inherent in certain Islamic financing models, particularly for real estate transactions. Under current rules, operations like *mourabaha* or *ijara*, where the bank purchases a good and then resells or leases it to the client, could incur double taxation due to property transfers. The 2027 Finance Law project intends to align the fiscal treatment of Islamic and classical finance by exempting transfer duties for these specific property transfers, thereby removing a key obstacle to direct competition and ensuring clients are not penalized financially for choosing Sharia-compliant options.
Currently, approximately thirteen banks in Algeria offer products conforming to Sharia principles, either through specialized Islamic banks or dedicated Islamic windows within conventional banks. These services encompass a broad spectrum of banking operations, including savings accounts and diverse financing options for housing and new vehicles. All products are subject to validation by the National Fatwa Authority for the Islamic Financial Industry, ensuring their adherence to Sharia principles. This segment of the financial market primarily attracts individuals, professionals, and small and medium-sized enterprises.
The proposed measure is expected to come into effect on January 1, 2027, provided it is adopted by Parliament, which is scheduled to vote on the text on November 16, followed by examination by the National Council. Experts anticipate this alignment of fiscal policy will foster a more equitable and competitive banking landscape in Algeria, allowing Islamic finance to continue its significant growth trajectory and offer enhanced value to its customers.
