Uganda and the quest for Islamic banking

The Minister of Finance urged Legislators to quickly enact a law that deals with Islamic banking so that this new phenomenon can be realized in Uganda. The people in Uganda are also eagerly waiting to engage in this new concept of Islamic Banking that has “interest free loans”. The speculation in my opinion is how this new system shall differ from the already existing banking and whether it offers better opportunities than the current Banking systems in Uganda.

Islamic banking is essentially a banking system that is premised on the teachings, doctrines and the principles of the Quran, the holy Book for Moslems. It emphasizes equality and justice and above all morality even whilst doing business.

Islamic Banking is also widely interpreted as the banking system where “no interest” is charged on loans or given on deposits as opposed to the modern capitalistic banking system where interest on loans is the basis for liquidity in a bank and interest on deposits attracts the consumers to Financial Institutions.

Many economists indeed argue that interest is the reward for money. Where money is invested, or used by another the return is interest. John Maynard Keynes (1883-1946) argued that money is the most liquid of assets and that interest is the price paid for loss of liquidity. Interest is therefore an important aspect where a Bank is to make money and where individuals or corporations are “forced” to make deposits in the Bank.

This therefore makes me ponder as to how this interest free system actually works. Is it a utopia of sorts and simply idealistic and can never work or can it be feasible even in Uganda. To answer this question, my research led me to digging up history of Islamic banking and how they survive in this ever capitalistic world.

Islam does not allow interest (“riba’) to be charged on money and Islamic banking per se does not allow for this Interest on deposits or loans. However, Islam allows reward for work and sharing of loss. The concept of Islamic Banking is simple and it is easier to describe than define: You take two persons for example, one has money to lend out and the other the idea to invest the money. The one who lends out the money gives it without any interest on return, but the one who receives it agrees at the onset that he will work with the money, make profit and then share the profit with the one who gave the money in the first place at an agreed percentage. In this way the owner of the money shall have the principle back and also a share of the profit in the investment made.

The loss is suffered by both parties as well. When there is a loss, the owner of the money shall suffer the loss as much as the investor has suffered in the lass. This concept works both for deposits in the bank, in which case the bank becomes the investor sharing profits in an agreed percentage with the depositor, and for the bank where it lends out money to persons.

Islam argues that there is no justifiable reason why a person should enjoy an increase in wealth from the use of his money by another, unless he is prepared to expose his wealth to the risk of loss also. As long as the owner of money is willing to become a shareholder in the enterprise and expose his money to the risk of loss, he is entitled to receive a just proportion of the profits and not merely a merely nominal share based on the prevailing interest rate.

Therefore, under an Islamic banking system, the cost of capital is not analogous to a zero interest rate, as it is assumed. The only difference between Islamic banking and interest-based banking in this respect is that the cost of capital in interest-based banking is a predetermined fixed rate, while in Islamic banking; it is expressed as a ratio of profit.

In my opinion, the aspect of Islamic Banking works best in an environment of upright morality and lawfulness and since it is a sharia concept, strict rules of Sharia should apply where there is breach of the agreement to lend and invest ones money.

While Parliament is under pressure to produce a law regulating Islamic Banking, these aspects need to be looked at in detail and ensure that they are well captured so that the rather idealistic banking can be realized.

Ian Mutibwa
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The issue of tax exemptions in Uganda is one that has resounded a lot in the media. From the suspension of some tax exemptions in the 2014-2015 budget to the current Tax Appeals Tribunal ruling on whether the Minster of Energy had the power to issue tax exemption to Tullow Oil Uganda and Tullow oil Operations Pty. These events have made me ponder anew about tax exemptions, what are they and their effect on our economy.

It should be noted that our economy is known to have one of the most tax exemptions. The recent case of Tullow Oil and Uganda Revenue Authority perhaps shows how much Uganda government would have lost had a capital gains tax exemption been upheld by the Tax Appeals tribunal or what it stands to lose if the decision is overturned.
Bilateral donors including the World Bank have over the years been calling on government to remove and/or reduce tax incentives, saying they had outlived their usefulness and more so at a time when there was need to widen the tax base and raise abundant revenue to finance a larger part of the budget.

It is little wonder that while presenting the budget on June 12, Finance Minister announced the scrapping of several tax exemptions, which she expects Parliament to pass so as to raise the revenue to fund the budget.
What then is the essence of tax exemptions are what is the impact of these exemptions on an economy. To be exempt from tax is to remove the burden of paying a particular tax to the government. Many times these tax breaks or holidays and exemptions are used to attract investors and encourage a certain investment in a particular sector. The million dollar question therefore is? Is investment directly proportional to tax exemptions? Various surveys have shown that what investors need more than incentives are a better environment for doing business such as better infrastructure, political stability and utilities such as cheap energy, and piped water, which bring in better returns on investment than the tax incentives. Exemptions may not necessarily attract investors as the other factors do.

The effect of tax exemptions is wide and not only touches the economy at large but also the ordinary man. In order to determine the costs of tax incentives and exemptions, it would be prudent to have the computation to include not only the revenue foregone, but also associated benefits such as raising income, job creation and technology transfer.
In its 2010 report, the African Development Bank estimated that Uganda loses at least 2% of its GDP from tax incentives, thus the Country is being deprived of badly needed resources to reduce poverty and improve the general welfare of the population.

The URA, however, needs to recoup this tax that has been exempt. Take a look at the USD 400m that would have been exempt. Where would it come from? The answer lies in you as the tax payer. This burden then shifts to the tax payer to cover up this loss. With every exemption for a big investor, comes a higher tax burden to the populace.
Whether exemptions increase development or simply enhance tax burden on the already poor populace is a question whose answer is nether yes or no.

In my opinion, Tax exemptions and incentives must be given in a properly structured environment if the Country is to realize the intended policy objective for which they are given without necessarily increasing the tax burden on the common man.

Whilst granting these exemptions, it must also be observed that incentives per se do not attract Foreign Direct Investment (FDI). Other factors such as the efficiency of political institutions, market size, or the education and productivity of the local labor force and other factors of production should be put in place to create a conducive environment for productivity, creativity and investment.

Ian Mutibwa
Tax and Legal Consultant
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What you should know before using someone's image/song without permission.

Muhangi Kenneth
LLB (Hons) LLM (Wales) Dip Lp (LDC)

The Secret to creativity is knowing how to hide your sources'
Albert Einstein( German Born American Physicist who developed the special and general theories of relativity. Nobel prize winner for Physics 1921.

It is undeniable that the level of creativity we have in Uganda is enviable. We are fortunate to have a number of poets, authors, artists, musicians and designers etcetera. We have so much creativity that the powers that be decided to enact a law to protect said creatives, in the hope of ensuring that they can not only reap from their creative minds but also have a chance to forever be recognized for their efforts.
Ironically, although copyright’s core attribute is originality, for historical reasons, Uganda modeled its copyright laws around the British copyright system. Copyright in Uganda is currently governed by The Copyright and Neighbouring Rights Act (CNRA). The act provides protection for almost all physical forms of creative work like literary works; dramatic and musical works, including any accompanying words; audiovisual and cinematographic works; works of drawing, engraving, pictorial, graphic, and sculptural works; works of applied art and designing; illustrations, maps, plans and three dimensional works; derivative and compilation works; and traditional folklore and knowledge among others.
Copyright protection works in three simple ways, have an idea, concept, express that idea/concept in material form by either recording it if it is a song or tune and get automatic protection.
Copyright protection is granted to the expression of the idea, not to the idea itself. This principle is known as the idea-expression dichotomy. Usually this protection lasts for 50 years but the right to be associated to your work lasts even beyond an author’s life time.
Sadly, the notion of copyright protection is yet to take root in Uganda. In the Music industry for example, authors are exploited daily by copyright users who enjoy their work without permission without any form of compensation or remuneration. Although this is partly their fault, seeing as they go so far as begging “the fans” to download their music.

In the more developed jurisdictions where copyright protection is more strictly enforced, we have seen a number of famous cases that have the headlines.

Most Notably is the Obama Hope poster that went viral in 2008 during the obama campaign. Although the image was largely associated with the Obama campaign, we were later to learn that the true author of the photograph was taken in 2006 by Mannie Garcia for the Associated Press.

A Famous street artist Shephard Fairey created the Hope poster during President Obama’s first run for presidential election in 2008. The design rapidly became a symbol for Obama’s campaign, technically independent of the campaign but with its approval. In January 2009, the photograph on which Fairey allegedly based the design was revealed by the Associated Press as one shot by AP freelancer Mannie Garcia — with the AP demanding compensation for its use in Fairey’s work.
Fairey responded with the defense of fair use, claiming his work didn’t reduce the value of the original photograph. The artist and the AP press came to a private settlement in January 2011, part of which included a split in the profits for the work.
Although the case did not go to trial, this case created a lot of discourse around the value of work in these copyright battles. It’s unlikely that Garcia’s work could have ever reached the level of fame it did, if not for Fairey’s poster. Garcia himself stated he was ”so proud of the photograph and that Fairey did what he did artistically with it, and the effect it has had,” but still had a problem with the fact that Fairey took the image without permission and without credit for it’s originator.
In 2004, a Kenyan company Alternative Media sued for injunctive relief against Safaricom Ltd for copyright infringement on its design. The design which was modeled on a campaign against the spread of HIV/AIDS had been submitted to Safaricom as a proposal to be used on their 250 airtime scratch cards.
Safaricom had turned down Alternative Media’s proposal but later used an almost similar design to it, in its airtime scratch cards with intention to run the campaign. Although the Kenyan courts agreed that the defendant had indeed infringed on the plaintiff’s copyright because the design they used on their airtime scratch cards was substantially the same as the one submitted by the plaintiff to them as a proposal; the court was however reluctant to grant the plaintiff the desired interlocutory injunction stating that the defendant being a major stakeholder in the country’s telecommunication industry and that an injunction will hamper an integral part of the county’s economy.

That is not to say that Uganda is completely in the dark. We have had a number of jurisprudence concerning copyright in the music industry. Most of these cases have been championed by the effort of Uganda Performing Rights Society (UPRS). UPRS has done a commendable job in protecting the rights of its members. It’s the photography, design and modeling industry that still lags behind. In 2013, a group of young entrepreneurs T/A Urbane Entertainment sued Nile Breweries Ltd for Copyright infringement for the unauthorized use of their copyrighted material.

Urbane Entertainment claimed to have come up with a TV production for a Music Video Awards show, which they pitched to Club Beer. They further claimed that Club, in circumstances similar to the Kenyan case, copied their idea and hosted the Club Video Music Awards. Although this case was settled at mediation, it shed some light on the level of impunity with which copyright infringement takes place.
Not until the victims bring unauthorized users of their work to book will we see a change. We still see so many downloaded images on billboards that are used to advertise even the most mundane of items. However, most of these images are used without credit to the author. This can only mean that the authors haven’t woken up to smell the coffee or they do not know that they have a cause of action against the users of such work. The lesson from the cases is clear, when using someone else’s work, make sure everyone knows the source.
The words of Albert Einsten could not resound any louder. As to whether the copyright infringers will keep getting away with it; we will just have to wait and see.