Taxation Treatment Of Islamic Finance Products In Australia PDF Download

In contrast to countries such as Malaysia, Singapore and the United Kingdom, Australia has reacted belatedly to the phenomenon that is Islamic Finance. Nevertheless, there is no evidence that the delay is the result of a deeper consideration of the issues. The terms of reference provided to the government's Board of Taxation mandated reforms to the tax system to level the playing field between Islamic and conventional finance on the assumption that this was in the national interest. However the indications are that necessary threshold questions were not first addressed, including:• Do Islamic finance arrangements generate returns and payments that might be properly described as, in economic substance, interest or, rather, in lieu of interest?• If the returns and payments are in economic substance interest then is it appropriate (or necessary) to amend the tax laws to facilitate artificial arrangements directed at eluding the Islamic moral code? • If the returns and payments are to be properly viewed as in lieu of interest then is it appropriate to embark on tax reforms to treat them as interest given that this amounts to a specific tax concession not available to the general body of investors? This necessitates a number of inquiries:• Whether broader based reforms to remove the tax differentiation between the treatment of debt and equity investments might be more appropriate?• Alternatively, if consideration is to be restricted to more narrowly focused reforms then are these in the national interest? This requires consideration as to:• Whether reforms catering for the nuances of a particular religion are permitted and/or appropriate for a secular country such as Australia?• Whether Islamic finance with its artificial and complex arrangements and uncertain pedigree should be endorsed?• Whether Islamic finance will continue to grow to become a significant component of the global financial environment? • Whether the tax disincentives associated with Islamic finance are sufficient to deter economic activity by Islamic investors and borrowers? • Whether the tax integrity and definitional risks from any reforms could be sufficiently ameliorated and/or justified?Only after an open consideration of these issues should attention turn to the particulars of the reforms to the tax regime, if any, that might be implemented.