Revenue Memorandum Circular No. 35-2022

Revenue Memorandum Circular No. 35-2022 prescribes the tax treatment of Murabahah (Profit Disclosed Sale) and Tawarruq (Commodity Murabahah) as Islamic Banking Arrangements pursuant to the tax neutrality provision of Republic Act No. 11439 (An Act Providing for the Regulation and Organization of Islamic Banks) and as implemented by Revenue Regulations No. 17-2020. 

According to the circular, the economic substance of a Murabahah Financing (Profit Disclosed Sale) is equivalent to a conventional mortgage loan. Similarly, the economic substance of a Tawarruq (Commodity Murabahah) is equivalent to a conventional cash line facility. The circular provides that gains or profits derived from Islamic banking arrangements, in lieu of interest income under the conventional banking transactions, are subject to tax.