Tuesday, October 26, 2010

Australia Seeks Tax Changes to Promote Sukuk

Australia plans to change laws to ensure Islamic finance products are taxed fairly as the government seeks to attract investors from the Middle East and Asia, paving the way for sukuk sales, reports Bloomberg (Oct 20, 2010).

The report reads:

The national taxation board will hold talks next month in Sydney, Canberra and Melbourne on how to best ensure that Islamic finance transactions are treated the same as equivalent non-Islamic deals. The board noted this month that mortgages that comply with religious principles may lead to stamp duty being paid twice, as the financier buys the property and then sells it to his client. Under a conventional mortgage there is only one sale that attracts the duty.

While Australia’s 365,000-strong Muslim population is 2 percent the size of Malaysia’s, the largest sukuk market, making the industry more accessible would generate demand, the government has said. Australia is looking to join countries from Egypt to South Korea in seeking to ease barriers to Shariah- compliant products and tap the industry’s $1 trillion in assets, which the Kuala Lumpur-based Islamic Financial Services Board predicts will reach $1.6 trillion by 2012.

“Islamic finance is a rapidly growing part of the global financial system and Australia is in an excellent position to capitalize on that growth,” Assistant Treasurer Bill Shorten said in an e-mail response to questions from Canberra on Oct. 18. Islamic finance will provide Australia with access to more offshore capital, he said.

Australia’s natural resources will provide companies seeking to sell sukuk with the underlying assets to back the debt and conform to the religion’s ban on interest, according to Zaid Ibrahim & Co., Malaysia’s biggest law firm.

Middle East money managers are interested in Australia investments that offer higher yields than most developed markets as well as potential returns from gains in the currency. Australia’s dollar advanced 7.1 percent this year against its counterparts among the Group of 10 currencies, second only to the yen.

“Australia wants investment from Gulf countries and that’s the reason they are taking it very seriously,” Abu Umar Faruq Ahmad, chairman of the Shariah Supervisory Board at the Sydney- based Islamic Co-Operative Finance Australia Ltd., said in an interview. “I see a lot of interest from the Gulf,” said Ahmad, who is also an assistant professor of Islamic finance at Hamdan Bin Mohammed e-University in Dubai.

There are a small number of companies offering Islamic financing in Australia, the tax office said this month, including the Muslim Community Cooperative Australia, a Melbourne-based mortgage provider, and Islamic Co-Operative Finance Australia.