Business

Govt asked to exempt Islamic
banking transactions from
taxes

The Indonesian government needs to exempt all transactions in the Islamic banking system from  taxes in order to spur its development in the country, a world’s major player in the industry says.

“I think, for the Islamic finance here to grow well, the government should provide tax neutrality to any transaction made in Islamic finance,” Badlisyah Abdul Ghani, CEO of CIMB Islamic Berhad, said on Wednesday.

He said that Indonesia, which is the world’s largest Muslim country in term of population and the Southeast Asia’s largest economy, boasted a huge potential to become the biggest market for Islamic financial products.

He said that Indonesia’s law on sukuk and sharia banking, which had among others allowed government to sell Islamic bonds and banks to establish their own Islamic banking arms, had been showing to the financial world that it was very serious in developing the Islamic financial market.

But he said, the government needed to go further in pushing its growth by providing tax neutrality as had been given by some other countries.

“Malaysia has provided such tax neutrality since long time ago. Even Britain and Singapore have provided such tax neutrality,” he noted.

According to him, Malaysia’s Islamic finance, which was started in 1983, saw a growth of only 1 percent during its first ten years of operation.

But after it improved its legal platform and provided tax neutrality in 2004, Malaysian Islamic finance grew much faster.

At the end of 2004, total assets of Islamic banks and Islamic windows in Malaysia stood at $25.26 billion (94.6 billion ringgit), with an average annual growth of 19 percent since 2000.
The Islamic bond or sukuk market, for example, shot up in 2005 to represent 71.4 percent of the total bonds as compared to 48 percent at the previous year.

Currently, Malaysian Islamic bond issues represent 57 percent of the global issues, making it the world’s largest in terms of Islamic bond issuance.

CIMB Islamic, which has 600 branches, mostly in Malaysia and Indonesia, is the world’s largest issuer of sukuk with a global market share last year of 20 percent.

In Malaysia, Islamic banking now represents about 12 percent of the banking sector, targeting to reach up to 30 percent by the year 2020.

Badlisyah, who was named the best individual Islamic banker for 2008 by Islamic Finance News Awards, his second consecutive award in that category, said that he could not say yet about the target this year as the market is still volatile due to the ongoing global crisis.

He also refused to give details on last year performance, saying that his company will make an announcement on that in the near future. But he said that in the next three years his company aimed at growing its Islamic business from currently less than 10 percent to about 20 percent of the total CIMB group.

In Indonesia, Islamic finance still accounts for less than 3 percent of banking assets.

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