The proposed new laws would bring several types of Islamic financing transactions into the tax net and bolster SA's gross domestic product (GDP), she said. By giving recognition to Islamic investors, SA would be on a par with other global jurisdictions.
In his budget review earlier this year, Finance Minister Pravin Gordhan announced the legislature would consider the introduction of specific legislation to deal with Islamic-compliant finance.
Islamic finance is derived from Shariah practice, involves profit and risk sharing, and forbids the paying and receiving of interest, as well as investment in certain industries. Ms Gangat said: "Interest is considered economically harmful by Shariah law as the extension of credit increases money supply, which stimulates demand for goods and services but does not always result in real tangible economic activity.
"It believes interest-bearing transactions result in economic ills including issues such as high inflation and unemployment."
The proposed amendments to the Income Tax Act take into account different types of Islamic financing and will be aligned with Shariah law.
Ms Gangat said that SA joins jurisdictions such as Australia, Hong Kong, the UK and a growing number of other non-Muslim countries developing their Islamic finance sector by changing regulations to attract investors who could only put their money in Shariah-compliant assets.
Emil Brincker, a tax director at commercial law firm Cliffe Dekker Hofmeyr, said in Islamic law the time value of money is not recognised. It regards money as a measuring tool for value and not an asset, he said. A person is not allowed to receive or generate income from money.Mr Brincker said a number of alternative financial instruments had been developed in order to be compliant with Islamic law.
For instance, a Sukuk - which represented an investment certificate - was the economic equivalent of a bond.
"Judging by the success of ethical funds worldwide, the need to bolster GDP in SA and the intense focus of business ethics, Islamic finance is likely to become a permanent feature of SA's economic landscape," said Ms Gangat.
Mr Gordhan has not indicated when the changes to the Income Tax Act will come into effect.