Bilaa-Riba would like to set up a scheme where they don't charge interest, but they still want their customers to get the tax deduction the government offers on interest. Overall, their argument sounds valid - the government gives a tax deduction because it wants to encourage people to take mortgages, so why shouldn't halal-mortgages also get a tax deduction?
However, the government is doing more than encouraging mortgages. It is encouraging the current financial institutions and structures by agreeing to help out with the interest paid. The government is aware that finance today needs interest. Why should the government finance a business which buys houses and then sells them for a profit while making sure this money will never enter financial transactions again?
Bilaa-Riba Islamic Finance from Leiden is the only credit provider in the Netherlands whose proposal to give halal mortgages was checked by the tax services. Now it turns out that the tax authorities rejected this construction already at the beginning of the year.
Both the tax authorities and Bilaa-Riba remain secretive as to the exact reasons.
One important point of contention regarding halal mortgages is the question whether an interest tax deduction is possible for an interest-free mortgage.
Bilaa-Riba thinks it is. Without the tax deduction, halal mortgages are not viable. Formally no interest it paid for a halal mortgage, just profit. A residence is bought by Bilaa-Riba and then sold for a higher amount to the client, who pays the debt in installments. "You pay indeed no rent, but the costs for the client are the same," stresses spokesperson H. Dini. "Thus we'd like to see the fiscal benefits applied also to the halal mortgage.
According to Dini, about 5000 Muslims are currently waiting for this type of mortgage. "The waiting list grows every day."
Bilaa-Riba is working on an adapted proposal that "in the shortest possible period of time' would be sent to the tax services.
Jan Willem ter Avest, spokesperson for Rabobank says that halal mortgages bring up many problems. The bank is 'considering' the possibilities but has no concrete plans. "We say many obstacles. You don't talk about interest, but do want an interest tax-deduction. Fiscally that's problematic naturally. And therefore it is important that we satisfy both Dutch and Islamic law." for example, he says that no interest may ever by charged for the money they put out for the halal mortgage and that requires a lot of research work.
Source: Trouw (Dutch)
See also: Hague: Halal mortgages
You can read more here Dutch Tax Office rejects Islamic Mortgage structure