The Islamic financial services sector got a major boost in tax exemptions and incentives that will help propel Malaysia as a leading international Islamic financial services centre. This was much needed since the neighbouring countries are very liberal in their tax structures and for Malaysia to remain in the forefront, these exemptions are something the Islamic banking community had been hoping for.
Prime Minister Datuk Seri Abdullah Ahmad Badawi announced six major measures that would help the sector move forward.
Income tax exemption for 10 years be given to all Islamic banking and takaful companies that conduct their business in foreign currencies. Recently the government allowed Islamic banks and takaful companies to conduct international currency transactions from anywhere in Malaysia and not just from Labuan Offshore Financial Centre. An income tax exemption makes it viable for banks and takaful companies to set up units from anywhere in Malaysia.
An additional 20% stamp duty exemption be given on instruments related to Islamic financing for three years.
This additional exemption is given after providing for tax neutrality between the conventional and Islamic financing. This is intended to further encourage the development of Islamic financial sector.
Income tax exemption for 10 years be given to local and foreign fund managers who manage Islamic funds for foreign investors. This would also bode well for the promotion of foreign Islamic fund management activities.
Personal tax relief on study fees, up to a maximum of RM5,000 per year will be extended to Islamic studies conducted in institutions of higher learning, including the International Centre for Education in Islamic Finance.
This move is to address the number of experts in the field of Islamic finance.
Tax deductions be given on expenses incurred in establishing an Islamic stock broking firm. Abdullah said this was to support the national agenda to make Malaysia an Islamic financial hub.
Tax deductions on expenses incurred in the issuance of Islamic products to be extended from year of assessment 2008 to 2010.
There will also be a review of tax treatment on special purpose vehicles for Islamic financing.