Malaysia to cut taxes on Islamic transactions

Malaysia will cut taxes on Murabahah, and Bai Bithaman Ajil Islamic transactions based on Tawarruq to promote "innovation in Islamic securities," Prime Minister Datuk Seri Mohd Najib Razak said in his budget speech to parliament last on Oct 15, 2010.

Bloomberg reports that the policy will take effect next year and will last until 2015, he said. Bursa Malaysia Bhd, plans to start selling sukuk, or debt that pays asset returns to comply with the Islam's ban on interest, to individual investors, Mohd Najib said in Kuala Lumpur.

A Murabahah agreement refers to a transaction involving the sale and purchase of goods, whereby the seller provides a price to the buyer along with a profit margin. Bai Bithaman is a type of investment product with a pre-agreed profit rate. Islamic banking in Malaysia, the world's biggest market for sukuk, rose 21% in the first seven months of 2010 from a year earlier, and accounted for 20% of the total, the Ministry of Finance said in its 2010-2011 Economic Report issued last week before the budget announcement. Assets that comply with the religion's ban on interest climbed to RM337.6 billion ringgit, the report said.