Government Eyes Incentives for Islamic Finance
Indonesian government may offer tax incentives for Shariah bond issues and bank deposits to better compete with Malaysia, the world’s top Islamic finance market, the central bank official said on Tuesday. One sweetener being considered would help boost bank capital and another could provide a tax holiday for sukuk (Islamic bond) issues. The country has already removed double taxation on Islamic finance transactions to give the industry a level playing field with conventional banking, but new policy was needed.
To support Islamic banking and finance, it’s not enough just to have tax neutrality. We need also tax incentives like in Malaysia as islamic banking director at Bank Indonesia said on the sidelines of an Islamic-banking conference in Singapore. For investment to come into Indonesia, it is possible to give a kind of tax holiday. Islamic bank assets in Indonesia are just a fraction of total banking assets, while in Malaysia they are close to a fifth.
Indonesia’s Islamic bank assets were Rp 66 trillion ($7.2 billion) as of December, compared with Rp 2,534 trillion for the banking industry as a whole, central bank figures show. In Malaysia, Islamic banking assets totaled about $95 billion. Still, with the world’s biggest Muslim population, Islamic bankers say Indonesia is set for explosive growth. But first, authorities need to lay the right legal and regulatory framework. (more…)
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