By
Siow Li Sen
While Malaysia continues powering ahead in Islamic finance, which is based on ethical principles and bans interest, Singapore seems to have given up the ghost.
At least one leading player has already exited the retail Islamic finance market here to focus on Malaysia.
Even headhunters have been relocating from Singapore to Kuala Lumpur to help international banks set up Islamic finance teams there.
And now a key tax incentive for the business in Singapore has been allowed to lapse.
In last month's Budget, the government said it will tax Islamic finance business at the standard 12 per cent rate instead of 5 per cent, the current rate, when the incentive expires on March 31.
Tax incentives for other financial services, which carry concessionary tax rates of 5 per cent, 10 per cent and 12 per cent, will be extended for five years to Dec 31, 2018.
Normal corporate tax rate is 17 per cent.
Lim Maan Huey, PwC Services partner, said the 5 per cent tax rate on income from qualifying Islamic finance activities was introduced to boost growth in the market when it was in its infancy.
"Several years have passed since its introduction and it was noted that there were not many takers for the 5 per cent rate incentive which probably explains the reason for the lapse," said Mr Lim.
As the region's leading financial centre, Singapore had hoped to play some role in the fast-growing business.
The US$1.3 trillion syariah-compliant finance industry is expanding at an average annual rate of 15 per cent, according to a report from Malaysia's Securities Commission last June.
The Islamic Financial Services Board in Kuala Lumpur predicts the market will reach US$2.8 trillion by 2015.
Kuala Lumpur, the world's largest Islamic finance centre, accounts for about 60 per cent of global sukuk or Islamic bond sales.
Last year, sukuk issuances amounted to all-time high of RM97.5 billion (S$39.1 billion), more than double that in 2011.
No wonder, headhunter Andrew Price relocated from Singapore to Kuala Lumpur two years ago, even though it meant uprooting his wife and children. Business is booming, he said.
"A number of international banks are setting up new Islamic finance teams based in KL for the first time," said Mr Price.
"There is demand for senior guys with good experience to lead the teams and then they need various specialities such as product structuring, marketing, compliance and shariah advisory to support them," he added.
