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Introducing Islamic finance to Malaysia
Thirty years ago, Islamic financing was almost unheard of, even in South East Asia. Today, Islamic financing in Malaysia is a real alternative to conventional financing, with eleven locally owned fully-fledged Islamic banks in the country as well as six foreign owned Islamic banks. Taxand Malaysia discusses the tax issues affecting Islamic financial transactions and
Malaysian tax incentives.
Malaysia recently introduced a sound regulatory framework for Islamic financing as well as tax laws which not only seek to ensure that Islamic financial transactions are taxed on an equal footing with conventional financing transactions, but go further to provide tax incentives to the Islamic financial sector to promote the growth of this sector.
Malaysia has also spearheaded itself as an Islamic Financial hub in the region with the establishment of the Malaysia International Islamic Financial Centre (MIFC) initiative. The MIFC is an initiative aimed at promoting Malaysia as a key global player in Islamic finance.
Clearly, tax incentives are important and should play an important role in nurturing and encouraging the on-going development and growth. However, aside from tax incentives, there is a need to ensure a clear regulatory framework for the Islamic financial sector. It is also equally important to have skilled human talent in this niche market to create innovative and sophisticated Islamic financial instruments that are both marketable and Syariah compliant.
The MIFC initiatives have certainly gone some way towards to addressing the needs and challenges of developing Malaysia as an international Islamic financial hub and it is expected that the initiatives will continue to evolve with time. However, healthy competition from Singapore, Hong Kong and the GCC countries, as well as the current global financial crisis will undoubtedly have an impact on Malaysia's progress in this sector.
Your Taxand contact for further queries is:
Dr Veerinderjeet Singh
T. 603 2032 2799